MASTER 
NEGATIVE 

NO.  95-82473 


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Author: 


Glass,  Carter 


Title: 


Truth  about  the  Federal 
reserve  system 

piQQg" 

[Washington,  D.C.] 

Date: 

[1 922] 


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MASTER   NEGATIVE   « 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

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Glass,  Carter,  1858- 

Truth  about  the  Federal  reserve  system  ...  Speech 
of  Hon.  Carter  Glass  of  Virginia,  in  the  Senate  of  the 
United  States,  Monday  and  Tuesday,  January  16  and  17, 
1922.     [Washington,  Govt,  print,  off.,  1922] 

47  p.    23^". 


1.  Federal  reserve  banks.        i.  Title. 

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Truth  about  the  Federal  Res. System 


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LIBRARY 


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TRUTH   ABOUT  fkC'JFEDERAL 


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RESERVE  SYSTEM"  ■ 


These  figures  prove  beyond  all  controversy  that,  instead  of 
deflating  credits  and  currency,  the  Federal  reserve  hanks,  during 
the  t)eriod  of  falling  prices,  enormously  expanded  hank  credits 
and  increased  the  volume  of  circulating  notes.  This  is  espe- 
cially true  with  respect  to  credits  in  the  agricultural  sections 
of  the  United  States. 

*  *  nf  *  *  *  * 

Why  not  tell  the  farmer  the  truth  and  advise  him,  if  he  would 
escape  the  consequences  of  another  such  disaster,  he  should 
organize;  organize,  Mr.  President,  not  to  be  the  plaything  or 
the  instrument  of  designing  politicians,  but  organize  for  an  in- 
telligent investigation  and  pursuit  of  economics ;  organize  for  a 
cooperative  marl^eting  of  his  product ;  organize,  if  it  may  seem 
desirable,  for  the  cooperative  purchase  of  his  requirements; 
organize  for  an  intelligent  understanding  of  the  source  and 
volume  of  demand  for  farm  products. 

«  :|c  «  *  *  *  * 

If  some  Senators  will  go  home  and  talk  sense  to  bankers  who 
remain  outside  the  pale  of  protection,  instead  of  talking  non- 
sense to  farmers  and  arousing  prejudice  against  the  Federal 
reserve  banking  system,  which  has  afforded  them  protection, 
something  worth  while  will  be  accomplished. 


-^ 


SPEECH 


/ 


OF 


HON.  CARTER  GLASS 


OF    -VTR&INIA, 


IN   THE 


SENATE  OF  THE  UNITED  STATES 


Monday  and  Tuesday 
January  16  and  17,  1922 


/i 


86469—22174 


WASHINGTON 
1922 


DAMAGED  PAGE(S) 


^-> 


^„jO 


^13  1.12) 


SPEECH 

OF 

HON.    CAETEE    GLASS. 

Monday,  January  16,  1922. 

The  Senate  had  under  consideration  the  bill   (S.  2263)   to  amend  the 
Federal  reserve  act,  approved  December  13,  lairf. 

Mr.  GLASS.  Mr.  President,  the  distinguished  Senator  from 
Nebraslia  [Mr.  Nonius]  a  while  ago  said  some  things  with  whicn 
I  am  heartily  in  accord,  and  I  well  could  express  the  wish  that 
the  discussion  of  the  Federal  reserve  banking  system  might 
^'enerally  be  engaged  in  with  the  same  apparent  spirit  of  fair- 
ness as  was  manifested  by  the  Senator  from  Nebraska. 

But  Mr.  President,  I  venture  to  think  that  the  time  has  come 
when  some  one  should  assume  the  task  of  combating  in  the 
Senate  the  many  persistent  and  constantly  recurring  misrep- 
resentations which  for  more  than  a  year  have  streamed  tiom 
this  Chamber  with  respect  to  the  Federal  reserve  banking  sys- 
tem and  its  administration.  Aside  from  a  painful  disinclination 
to  speak  in  any  circumstances,  I  had  hoped  that  this  service  to 
a  great  Federal  institution,  and,  indeed,  to  the  country,  would 
be  undertaken  by  some  Senator  whose  long  tenure  would  pre- 
clude any  thought  of  a  premature  anxiety  to  project  himself 
into  the  important  controversies  of  this  body,  and  whose  estab- 
lished reputation  here  would  arrest  the  attention  of  the  Senate 
and  command  the  confidence  of  the  country. 

I  am  not  willing  to  believe  that  failure  of  any  Senator  of  this 
tvpe  to  speak  out  in  defense  of  the  Federal  reserve  system  may 
be  ascribed  to  indifference  to  the  success  of  the  system  or  to  any 
lack  of  pride  in  its  notable  achievements.  Many  very  grave 
problems  have  claimed  the  attention  of  the  Senate  and  to  these 
Senators  have  been  devoting  painstaking  labor.  Moreover,  it 
may  be  that  Senators  generally  have  thought,  as  I  confessedly 
have  believed,  that  the  hostile  assaults  on  the  Federal  reserve 
system  and  its  administration  have  manifestly  been  so  devoid 
of  the  truth  and  so  obviously  saturated  with  ignorant  prejudice 
and  injustice  as  to  require  no  answer. 

RESERVE    SYSTEM    SAVED   THE   NATION. 

But  Mr  President,  the  misconceptions  and  misrepresenta- 
tions to  wiiich  politicians  at  Washington  have  given  vehement 
expression  have  been  eagerly  seized  upon  by  restless  profes- 
sional agitators  and  disseminated  from  one  end  to  the  other  of 
the  country.  Thus  a  large  body  of  citizens  has  been  induced  to 
believe  that  the  Federal  reserve  banking  system  is  a  financial 
iuggernaut,  crushing  the  life  out  of  commerce  and  industry, 
crfating  widespread  depression,  and  putting  an  end  to  enterpris- 
ing business  activities.  Instead  of  clearly  apprehending,  that 
which  the  facts  so  amply  attest,  that  this  reserve  banking  sys- 

86469—22174  ^ 


tern  saved  their  country  from  inconceivable  distress,  from  irre- 
medial  disaster,  these  people  have  been  taught  to  believe  that 
its  continued  existence  would  be  a  peril  to  the  Nation.    They 
in  their  present  mood,  literally  would  smite  the  hand  that  feeds 
them  and  demolish  the  instrument  of  their  salvation. 

I  would  not  liave  it  imagined,  Mr.  President,  that  I  purpose 
to  decry  fair  criticism ;  on  tlie  contrary,  it  is  with  m«  a  constant 
prayer  to  be  kept  on  guard  against  the  streali  of  iconoclasm 
which  lias  too  evident  a  place  in  my  own  nature.  Neither  am  I 
disposed  to  assert  the  perfection  of  any  economic  instrumentality 
or  the  infallibility  of  any  human  agency.  It  would  be  amazing 
if  the  P'ederal  reserve  system  had  no  imperfections,  and  foolish 
to  assert  that  its  administration  has  been  devoid  of  error 
What  I  do  say  with  all  the  emphasis  of  which  I  am  capable  is 
that  neither  malignant  nor  ignorant  misrepresentation  will  cure 
the  system's  defects  or  render  more  efficient  its  administration. 

WHAT  IS   THE   FEDERAL   RESERVE   SYSTEM? 

That  wo  may  the  more  surely  discover  what  are  the  deficien- 
cies of  the  system,  with  a  view  to  their  abatement,  and  compre- 
hend to  better  advantage  the  mistakes  that  have  occurred  in  the 
execution  of  the  law,  it  might  be  profitable  to  inquire  what 
exactly  is  the  Federal  reserve  banking  system  and  how  it  haa 
been  administered.  Having  done  this,  we  may  determine  how 
true  or  false  are  the  charges  made  here,  how  fair  or  vicious  the 
criticism.  If  the  system  is  a  curse  or  its  execution  a  tragedy 
I  want  to  be  convinced.  If  the  system  is  a  benediction  to  this 
Nation  and  an  inspiration  to  the  world,  if  its  administration 
has  been  sane  and  salutary,  then  I  shall  feel  and  express  concern 
for  the  integrity  of  this  body  if  it  shall  appear  that  Senators 
have  disparaged  the  character  and  derided  the  personal  honor  of 
public  officials  with  no  better  sanction  for  such  behavior  than 
their  own  peculiar  antipathies  or  their  own  pitiful  ignorance  of 
the  financial  transactions  upon  which  thev  have  assumed  to 
comment.  For  one  I  am  not  willing  that  the  astonishing  state- 
ments made  here  shall  any  longer  go  to  the  country  unchallenged 
and  uncontradicted. 

For  half  a  century  before  the  advent  of  the  Wilson  adminis- 
tration the  United  States  was  compelled  to  endure  the  handi- 
cap of  the  most  unscientific  banking  and  currency  system  of  any 
that  prevailed  on  the  earth.  For  a  part  of  the  time  we  seem 
to  have  been  ignorant  of  our  plight ;  for  another  part  indifferent 
to  the  Situation,  j.nd  for  the  remainder  of  the  time  afraid  to 
apply  the  remedy  lest  we  should  wound  the  sensibilities  or  inter- 
fere with  the  profits  of  a  privileged  class.  We  were  during  no 
protracted  stage  without  ample  warning,  for  the  malady  mani- 
fested Itself  frequently  and  violently  in  disturbances  which 
swept  the  country  like  p.  hurricane  from  end  to  end  Five  times 
witliin  30  years,  prior  to  1913,  a  financial  catastrophe  had  over- 
taken us  right  in  the  midst  of  apparent  business  prosperity  and 
contentment.  Each  time  the  disaster  was  due  largely  if  not 
altogether,  to  a  defective  banking  and  currency  system ;  and  it 
IS  literally  certain  that  our  always  tedious  restoration  was 
rendered  vastly  more  difficult  and  painful  by  the  sad  lack  of 
well-devised  facilities. 

SIAMESE  TWINS  OF  DISORDER. 

The  old  system  had  two  fundamental  defects.     One  was  an 
inelastic  currency;  the  other  a  fictitious  bank  reserve     They 

S6469— 22174 


>^-' 


were  Siamese  twins  of  disorder;  and  I  am  inclined  to  ascribo 
the  invariable  failure  of  statesmen  to  reform  the  financial  sys- 
tem of  the  country  to  their  unwillingness  to  subdue  both  of  these 
evils  at  the  same  time.  While  tliey  repeatedly  would  tackle  the 
problem  of  an  inelastic  currency,  which  everybody  wanted 
solved,  they  seemed  never  in  a  mood  to  defy  the  pow^erful  in- 
terests behind  the  national  bank  reserve  system,  through  the 
peculiar  operation  of  which  nearly  the  whole  sum  total  of  idle 
bank  funds  in  the  United  States  was  congested  at  a  single  center 
for. use  in  the  stimulation  of  speculative  enterprises. 

A   RIGID   CURRENCY, 

The  national  currency  was  inelastic  because  based  on  the 
bonded  indebtedness  of  tlie  United  States,  rather  than  upon 
the  sound,  liquid  business  assets  of  the  country.  For  50  years 
we  proceeded  upon  the  assumption  that  the  counti-y  always 
needed  a  volume  of  currency  equal  to  its  bonded  indebtedness, 
and  never  at  any  time  required  less,  whereas  we  frequently  did 
not  need  near  as  much  as  was  outstanding  and  just  as  often 
could  have  absorbed  vastly  laore  than  was  available.  Hence, 
when  it  happened  that  the  circulating  medium  was  redundant, 
when  its  volume  was  too  great  to  be  used  in  local  commercial 
transactions,  instead  of  taking  it  through  the  expensive  process 
of  retirement  it  was  bundled. off  to  the  great  reserve  centers 
at  a  nominal  interest  rate,  to  be  thrown,  at  call,  into  the  vortex 
of  stock  speculation. 

In  a  different  way  and  to  an  immeasurably  greater  extent 
the  business  of  the  country  was  made  to  suffer  by  this  rigid 
currency  system  in  times  of  stirring  development  and  enter- 
prising activity.  It  could  not  begin  to  meet  the  commercial  and 
industrial  requirements  of  the  country.  For  example,  the  total 
capitalization  of  the  national  banks  of  a  given  community  in 
time  of  stress,  under  the  old  system,  measured  the  full  capacity 
of  those  banks  to  respond  to  the  currency  requirements  of  the 
locality.  If  the  combined  capital  stock  of  the  national  banks 
of  a  city  was  $5,000,000,  that  exactly  circumscribed  the  ability 
of  those  banks  to  supply  currency  of  their  own  issue  to  meet 
the  demands  of  business,  albeit  these  might  necessitate  the  use 
of  $10,000,000  or  more.  And  in  time  of  panic,  such  as  that 
which  convulsed  the  country  in  1907,  had  these  banks  held 
$5,000,000  of  gilt-edge  short-time  commercial  paper  in  their 
vaults  they  could  not,  under  the  old  system,  have  exchanged 
a  dollar  of  it  for  currency  wherewith  to  make  up  the  defi- 
ciency and  promptly  respond  to  the  requirements  of  business; 
for  practicallv  all  the  banks  were  in  the  same  desperate  plight, 
every  one,  with  rare  exceptions,  looking  out  for  itself,  with  no 
other  source  of  supply. 

A    NOTABLE    ACHIEVEMENT. 

What  was  done  by  the  Sixty-third  Congress  was  to  revolu- 
tionize this  wretched  currency  system,  the  unhapply  victims  of 
which  are  without  number  and  the  losses  beyond  human  ap- 
proximation. We  substituted  for  a  rigid  bond-secured  circulat- 
ing medium,  unresponsive  at  any  time  to  the  commercial  re- 
quirements of  this  great  Nation,  a  perfectly  elastic  currency,  ^ 
based  on  the  sound,  liquid  commercial  assets  of  the  country, 
responsive  at  all  times  and  to  the  fullest  extent  to  every  rea- 
sonable demand  of  legitimate  enterprise.  It  comes  forth  when 
required  and  is  canceled  when  not  needed.  The  amount  is 
86469—22174 


6 

ample  when  busiiiessis  active  and  only  enough  wlien  business  is 

wwo  f?  ^'^  ,'"  ^^  ^^^^  ^'"''^^''^  ^^  ^^^  o"«  «te(l  a  while  ago. 
^nere  the  banks  of  a  given  community,  with  $5,000,000  of  liquid 
commercial  assets,  could  not  under  the  old  system,  in  time  of 
stiess  get  a  dollar  of  currency  on  their  holdings,  because  there 
\vas  no  source  of  supply,  the  same  banks,  under  the  Federal 
reser^^  system,  could  exchange  their  $5,000,000  of  liquid  assets 
at  a  Federal  reserve  bank  for  $5,000,000  of  the  best  currency 
on  earth,  less  a  fair  rate  of  discount.  That  one  reform  repre- 
sents the  difference  between  disaster  and  success. 

A  VICIOUS  kEkErve  system. 
Another  fundamental  defect  of  the  old  system  was  its  ficti- 
tious bank  reserve,  created  by  that  provision  of  the  national- 
Dank  act  which  authorized  a  deposit  or  book  credit  of  individual 
country  banks  with  banks  in  reserve  and  central  reserve  cities 
to  be  counted  as  reserve,  just  as  if  held  in  the  vaults  of  the  in- 
terior banks.    On  these  reserve  balances,  subjected  to  a  process 
ot  multiplication,  the  big  banks  of  the  money  centers  would  pay 
nominal  interest,  which  operated  as  a  magnet  to  attract  the 
reserve  funds  of  the  entire  country ;  so  that  on  March  14,  1914, 
eight   months  before   the  Federal   reserve   system  was  put   in 
actual  operation,  the  New  York  banks  alone  held  $830,000,000 
of  the  funds  of  outside  banks,  while  they  were  loaning  outside 
banks  only  $192,000,000.     Already  the  congressional  monetary 
inquiry  had  disclosed  the  startling  fact  that  on  November  24, 
comnA^i^Li^^''**^    custodians    of   these    reserve    funds    had    put 
$-40,000,000  of  them  in  the  maelstrom  of  Wall  Street  stock  oper- 
ations.   Do  you  realize  quite  what  that  means?     It  means  that 
these  millions  and  many  millions  more  were  withdrawn  from 
the    reach    of    agricultural,    mercantile,    and    industrial    uses 
throughout  the  United  States  at  a  fair  rate  of  interest  and  loaned 
to  stock  gamblers  at  an  abnormally  low  rate  of  interest  in  com- 
parison. 

We  talk  about  the  law  of  supply  and  demand  and  pass  laws  to 
punish  combinations  in  restraint  of  trade;  but  before  the  enact- 
ment of  the  Federal  reserve  act  the  banking  community,  under 
the  sanction  of  the  atrocious  system  of  an  inelastic  currency 
ahd  a  fictitious  reserve,  was  enabled  to  defy  the  law  of  supply 
and  demand  both  in  the  lax  season  and  in  the  tense.  For  in  the 
season  of  lax  trade  and  abundant  currency  local  bankers  feared 
to  relax  the  standard  rate  of  interest.  Instead  of  keeping  the 
money  at  home  and  giving  the  local  agricultural,  commercial, 
and  industrial  interests  the  advantage  to  be  derived  from  low 
rates  of  discount,  the  surplus  funds  were  sent  to  the  money 
centers  for  the  accommodation  of  speculators. 

A  PANIC  BREEDER. 

The  old  system  was  a  rank  panic  breeder.  In  periods  of 
greatest  bu.siness  activity  the  country  was  made  to  suffer 
desperately  for  lack  of  adequate  credit  facilities.  W^hen  the 
prospect  was  brightest;  when  men  of  ambition  and  energy 
would  press  forward  in  pursuit  of  prosperity  and  the  hum  of 
industry  Avould  literally  be  heard  throughout  the  land,  two 
links  m  the  chain  would  suddenly  snap,  tearing  to  shreds 
the  whole  business  fabric  and  carrying  dismay  to  every  com- 
munity on  the  continent.  In  plain  terms,  when  the  country 
banks  of  the  United  States,  trying  to  respond  to  the  commercial 
and  industrial  demands  upon  them  in  their  respective  localities 
86469—22174  «    t  ^^a, 


being  unable  to  issue  additional  currency,  would  seek  to  draw 
n    the  "reserve    balances    from    the    congested    centers,    and 
when  the  big  banks  of  these  centers  would,  in  turn    be  com- 
peled  to  call  their  loans  on  stock,  thus  contracting  the  credit 
facdities  of  "the  street,"  interest  rates  would  quickly  jump 
mountln-  hioher  and  higher,  until  panic  would  ensue,  banks 
"ghout  the  country  would  stop  payments  across  the  counter 
and   consternation  would  reign  where  confidence  and  content- 
m^'nt  srsoon  befm-e  had  prevailed.    I  have  said  the  losses  are 
Le"coZiSn;  and  that  is  so.     They  affected  not  alone 
the  financial  institutions   immediately   involved    but  the  mer- 
chants  whose   credits   were   suspended;   the   industries   whose 
s  OPS  were  closed;  the  railroads  whose  cars  were  made  idle; 
the  farmers  whose  crops  rotted  in  the  fields;  the  laborer  who 
was  deprived  of  his  wage.    No  business  enterprise,  if  any  indi- 
vidual.  ever  entirely  escaped. 

ANOTHER    GREAT    ACHIEVEMENT. 

It  was  another  great  achievement  of  the  Sixty-third  Congress 
to  remedy  this  monstrous  condition.  No  other  legislative  effort, 
as  I  recall  the  history  of  events,  was  ever  directe(l  agamst  this 
SLk  reserve  evil.  It  required  courage.  It  constituted  a  chal- 
Teni^  to  the  dominating  financial  interests  of  America,  and  they 
accepted  the  invitatioS  to  the  conflict.  It  was  a  memorab  e 
fight  in  which  s(mnd  economic  principles  triumphed  so  completely 
that  many  of  the  great  bankers  who  seemed  once  implacable 
now  concede  that  a  tremendous  advance  has  been  made  m  the 
dfrlcUon  of  scientific  banking,  and  there  is  a  general  concur- 
rence of  belief  that  the  Federal-reserve  system  saved  this 
Sry  from  financial  convulsion  when  the  World  War  raged 

"^  wf  correc?edfhis  vicious  bank-reserve  system  by  establish- 
ing regional  reserve  banks  and  making  them  instead  of  private 
L°,nks1n  fhe  money  centers,  the  custodians  of  ^J YnnlTlnsJead 
of  the  United  States ;  by  making  these  regional  banks,  instead 
of  private  correspondent  banks,  the  great  rediscount  agencies 
of  fhe  country ;  by  requiring  these  regional  banks  to  minister 
?o  coiLierce  and  industry  rather  than  to  the  sebemes  of  specu^ 
lative  adventure.  Under  the  old  system  tbe  country  banks  were 
subservient  to  the  money  centers,  for  only  there  could  tney 
resort  for  recLcount  favors.  Under  the  new  systein  it  is  no 
[onger  a  question  of  favor;  it  is  purely  a  question  of  business. 

AN   INSPIRING    CONTRAST. 

In  1907  New  York  could  not  let  a  country  bank  have  $50,000 
of  banf  Jur'J.ency  to  meet  the  ordinary  ^;f-'^^-^%-^^^^^^^ 
or  the  pay  rolls  of  industry.    In  the  fateful  year  191.   New  York 
let    two   European    nations    at    war    have    '^^^^'^^^'^^.y-^^l^g 
new   svstem   enabled   the   Government   to   lend   $10,000,000,000 
abroad  S  to  float  $24,000,000,000  at  home  for  w;ar  Purposes 
&  the  old  systeni  about  $60,000.(KX)  "^^asii^^^d  the  — ^ 
rediscounts ;  under  this  reserve  system  one  of  the  smaller  re- 
gional banks  exceeds  that  anrount  in  a  single  State. 

RURAL   CREDITS. 

Not  in  50  years  had  any  jarty  ivritten  a  provisioninto  the 
national  banl  act  for  as  much  as  one  dollar  of  rural  cr:dUs 

iTthf contrary,  5,  the  text  of  the  ^'^^^'^ ^^,f.^,!/:Slance  o? 
Treasury,  and  hy  decisions  of  the  courts,  evei  y  semblance  of 

86469—22174 


8 

farm   credits  was  sedulously  excluded.     The  Federal  reserve 
system  furnishes  miHions  of  dollars  of  farm-credit   facilities 
j\ot  a  dollar  of  the  funds  of  a  national  hank  could  be  loaned 
tinder  the  old  system  on  improved  farm  lands.    Under  the  Fed- 
eral reserve  act,  according  to  a  computation  by  the  late  Charles 
A.  Conant,  $359MO.O0O  are  made  available  for  loans  on  farm 
mortgages  alone  having  five  years  to  run.     In  the  matter  of 
current  rediscounts  every  rational  advantage  is  r/iven  to  farm 
credits  over  mercantile  paper,  and  I  shall  show  that  billions  of 
dollars  have  been  loaned  to  the  farmers  of  the  United  States 
In  the  matter  of  acceptances  on  the  exportation  of  the  great 
staple  products  of  the  farm  infinite  aid   is  extended   to   the 
American  farmers.    In  addition  to  this  the  Federal  reserve  sys- 
tem hj'S  had  a  powerful  influence  in  lowering  the  rate  of  inter- 
est, and  in  this  circumstance  alone  the  farmers  of  the  country 
have  been  saved   millions  of  dollars.     Yet  it  is  at  a  system 
which  has  done  this  unprecedented  service  to  American  agri- 
culture that  professional  "friends"  of  the  farmer  are  hacking- 
away.    It  is  to  a  system  which  has  put  hope  in  rural  life  that 
caressing  demagogues,  for  selfish  purposes,  falsely  ascribe  the 
inevitable  reaction  from  the  saturnalia  of  unparalleled  expendi- 
tures. 
What  are  these  regional  banks? 
/     There  is  no  mystery  about  them.     It  is  not  difficult  to  under- 
/  stand  their  organization  or  their  processes.     Each  of  them  has 
I  a  defined  territory.     They  are  operated  by  boards  of  directors 
Just  as  any  individual  bank  is.     They  are  conducted  with  the 
.  same  banking  instinct,  with  the  same  technique,  with  the  same 
•  mechanical  and  human  appliances.     They  are  owned  not  by  the 
Government  of  the  United  States,  as  one  would  suppose,  but  by 
their    stockholding   member    banks.    The    Government   of   the 
United  States  never  contributed  a  dollar  to  their  capital;  the 
taxpayers  are  not  assessed  a  penny  for  their  maintenance ;  they 
pay  the  Government  annually  an  enormous  sum  in  franchise 
fees — $60,000,000    per    annum — against    the    meager    sum    of 
$3,000,000  per  year  paid  by  all  the  national  banks  in  the  United 
States  put  together.    They  are  banks  of  banks.    They  do  not 
loan,  can  not  loan,  a  dollar  to  any  individual  in  the  Unitcnl 
States  nor  to  any  concern  or  corporation  in  the  United  States, 
but  only  to  stockholding  banks. 

A  member  bank  in  Utah,  for  example,  has  accommodated 
its  customers  to  the  full  extent  of  its  resources.  It  can  loan 
DO  more  without  violation  of  the  National  or  State  banking 
acts.  It  neetls  additional  funds  with  which  to  make  other 
loans.  How  does  it  obtain  them?  By  taking  the  note  of  a 
borrower,  with  its  collateral  security,  giving  it  the  indorsement 
of  that  individual  bank.  It  sends  the  note  thus  indorsed  to 
the  reserve  bank  at  Kansas  City,  the  reserve  bank  rediscounts 
the  note  at  an  inappreciable  charge  over  the  rate  of  interest 
which  the  member  bank  charged  its  customers.  That  supplies 
the  member  bank  with  additional  funds  to  loan  to  other  bor- 
rowers. It  is  very  simple.  There  should  not  be  so  much 
ignorance  about  it  here. 

THE    SUPERVISORY    POWER. 

At  the  head  of  these  12  regional  reserve  banks  we  put  a 
supervising  board.     It  is  not  a  central  bank.    It  can  not  loan 
a  penny  to  anybody,  or  to  any  concern,  or  to  any  corporation. 
86469—22174 


9 

It  does  not  engage  in  the  minutire  of  banking  over  the  counter. 
It  has  not  a  dollar,  and  never  had  a  dollar,  to  loan  to  anybody. 
It  is  a  supervisory  board.  It  has  nothing  to  do  with,  and  not 
necessarilv  any  knowledge  of,  the  detailed  discount  operations 
of  the  various  regional  reserve  banks.  It  can  not  command  the 
weakest  or  the  strongest  regional  reserve  bank  in  the  district 
to  discount  to  the  extent  of  one  dollar  if  that  bank  does  not 
care  to  do  so.  It  can  not  prohibit  a  single  regional  ros^i've 
bank  from  discounting  millions  of  dollars  if  it  l.as  the  eligible 

paper  and  wants  to  do  it.  *  ,..n,«,» 

Mr.  POMEHENE.    Will  not  the  Senator  go  a  little  fuithei 

and  say  it  has  not  done  it  in  the  past? 

Mr.  GLASS.     It  has  not  done  it. 

Mr.  KING.  Mr.  President,  if  I  may  be  pardoned,  will  the 
Senator  explain  the  origin  of  this  heresy  which  some  Senators 
and  a  good  many  of  the  people  have,  that  the  Federal  reserve 
districts  can  draw  upon  New  York  whenever  they  please;  that 
it  is  the  duty  of  the  New  York  bank  to  loan  to  the  people  of 
Utah,  to  the  people  of  California,  to  the  people  of  Alabama 
the  money  which  belongs  to  the  B'ederal  reserve  bank  there,  and 
that  it  is  the  duty  of  the  Federal  reserve  banks  in  the  various 
districts  to  loan  whenever  any  person  comes  and  desires  money, 
even  though  the  bank  does  not  have  sufficient  capital  to  justify 
the  continuation  of  the  enormous  loans  which  it  in  the  past 

has  made?  .  ,  ,,    , 

Mr.  GLASS.  The  Senator  has  so  stated  his  inquiry  as  that 
it  carries  its  own  answer.  No  banking  system  that  would  do 
those  things  could  survive  in  any  country  on  earth. 

Mr.  SMITH.  :Mr.  President,  if  the  Senator  from  Virginia 
will  allow  me,  perhaps  I  misunderstood  the  inquiry  which  the 
Senator  from  Utah  made  when  he  said  that  the  reserve  bank  of 
one  district  could  not  be  drawn  upon  for  the  benefit  of  another 
reserve  bank.    AVas  that  what  the  Senator  said? 

Mr.  KING.  I  did  not  put  it  that  way.  Of  course,  I  appre- 
ciate that  in  a  certain  contingency,  as  has  been  explained,  by 
the  Senator  from  Virginia,  there  may  be  a  crisis  which  may 
warrant  interregional  discounts ;  but  the  heresy  has  grown  up 
that  the  people  of  Utah,  or  the  people  of  Alabama,  or  the  people 
of  anv  other  district  can  demand  of  New  York,  or  of  some 
other  district,  that  it  respond  to  the  wishes  and  needs  of  any 
State  or  any  district. 

Mr.  GLASS.  I  will  ask  that  Senators  desist  for  the  present 
from  this  argument.  I  do  not  object  to  being  interrupted,  but 
I  do  want  to  finish  this  speech. 

Mr.  SMITH.  I  just  want  to  read  in  that  connection  one 
little  paragraph  of  about  5  lines  from  the  law. 

Mr  GLASS.  I  shall  come  to  that,  if  the  Senator  will  allow 
me.  I  shall  explain  it  fully.  I  have  said  that  in  certain  ex- 
treme contingencies  the  law  does  permit  the  Federal  Reserve 
Board,  by  a  vote  of  five  of  the  seven  members,  to  go  to  the 
financial  assistance  of  some  weak  Federal  reserve  bank  to 
avoid  a  crisis,  not  in  ordinary  course  to  loan  it  the  funds 
of.  some  other  region  with  which  to  do  business.  The  textual 
restriction  of  the  statute  on  the  Federal  Reserve  Board  indi- 
cates what  was  contemplated.  If,  perchance,  the  inability  of  a 
weak  Federal  reserve  bank  to  respond  to  the  urgent  requirements 
of  its  member  banks  would  threaten  financial  disaster  in  a 
86469—22174 2 


\ 


10 


great  section  of  the  country,  tli«i,  in  the  judgment  of  the 
Federal  Keserve  Board,  five  members  of  which  were  required 
to  act  affirmativelj',  one  Federal  reserve  bank  might  go  to  the 
assistance  of  another  Federal  reserve  banli.  That  is  all  there 
is  to  that.  The  distinguished  Senator  from  Ohio  [Mr.  Pom- 
erene],  who  was  a  conferee  with  me  on  the  bill,  knows  I  am 
stating  the  cat>e  exactly. 

IVIr.  President,  if  my  exposition  of  the  Federal  reserve  act 
has  been  accurate,  it  will  be  observed  that  the  Federal  Reserve 
Board  sitting  at  Washington  is  not  a  central  bank ;  it  Is  merely 
a  snpervisory  bodj,  with  certain  clearly  defined,  limited  powers. 
It  can  not  establish  a  credit  for  any  individual  member  bank  at 
a  single  one  of  the  Federal  reserve  banks.  It  can  not  issue  a 
dollar  of  currency  to  any  one  of  these  regional  banks,  except 
upon  the  specific  application  of  tlie  regional  bank.  It  can  not 
withdraw  or  cancel  one  dollar  of  Federal  reserve  bank  notes, 
with  a  view  to  contracting  the  currency  or  for  any  other  pur- 
pose, not  a  dollar. 

I  have  sat  here  for  a  year  and  heard  Senators  denouncing  the 
Federal  Reserve  Board  for  withdrawing  circulating  notes.  It 
has  no  particle  of  autliority  under  the  law  to  withdraw  one 
single  dollar  of  currency  from  circulation. 

It  may  decline  to  issue  currency  upon  request  of  a  regional 
reserve  bank,  but  there  is  not  one  instance  of  record  since  the 
establishment  of  the  system  in  which  it  has  done  that.  It  may 
levy  a  tax  on  Federal  reserve  notes,  so  as  to  make  their  issuance 
uninviting  to  the  regional  banks,  but  there  is  no  instance  of 
record  in  which  it  has  levied  a  penny  of  tax  on  note  issues. 

Mr.  WATSON  of  Georgia.    Mr.  President 

The  PRESIDING  OFFICER  (Mr.  Jones  of  W^ashington  in 
the  chair).  Does  the  Senator  yield  to  the  Senator  from 
Georgia  ? 

Mr.  GLASS.     I  do. 

Mr.  W\\TSON  of  Georgia.  Mr.  President,  I  saw  in  the  Wash- 
ington papers  yesterday  a  statement  issued  by  the  Federal  Re- 
serve Board  whicli  seemed  to  say  that  during  the  last  12  months 
they  had  retired  of  their  note  circulation  a  thousand  million 
dollars. 

Mr.  GLASS.  I  will  say  to  the  Senator  that  the  Federal  Re- 
serve Board  has  not  retired  a  dollar.  The  various  regional 
reserve  banks  have  retired  their  Fetleral  reserve  notes,  for 
which  they  made  application  when  business  was  humming  and 
industry  was  at  its  height.  Now  that  there  is  widespread  busi- 
ness depression,  these  regional  reserve  banks,  not  the  Federal 
Reserve  Board,  have  sent  in  cei'tain  notes  for  cancellation  and 
destruction. 

Mr.  OVERMAN.  Mr.  President,  I  would  like  to  ask  the 
Senator,  before  he  leaves  that  question,  who  fixes  the  discount 
rate? 

Mr.  GLASS.  The  Federal  reserve  banks  fix  the  rate,  subject 
to  review  and  determination  by  the  Federal  Reserve  Board.  I 
am  coming  to  that. 

Mr.  JONES  of  New  Mexico.     Mr.  President 

The  PRESIDING  OFFICER.  Does  the  Senator  from  Yir- 
ginia  yield  to  the  Senator  from  New  Mexico? 

Mr.  GLASS.  I  do.  I  want  to  give  all  the  information  I 
can,  but  Senators  by  interrupting  are  going  to  prolong  my 
speech. 

80469— 22174 


11 


Mr.  JONES  of  New  Mexico.  I  do  not  understand  that  the 
Federal  Reserve  Board,  as  such,  has  the  power  to  restrict  the 
issuance  of  notes  or  enlarge  the  amount  of  an  issue;  but  inas- 
much as  one-third  of  the  board  of  directors  of  each  of  the 
regional  banks  is  appointed  by  the  Federal  Reserve  Board  in 
Wasliington,  does  not  the  Senator  believe  that  any  reconunenda- 
tion  of  policy  directed  to  these  regional  banks  would  be  quite 
effective,  and  is  it  not  claimed  that  such  policies  have  been 
announced  by  the  Federal  Reserve  Board,  and  that  that  has  re- 
sulted in  the  deflation  of  the  currency  in  the  country  and  in  the 
restriction  of  the  amount  of  the  currency ;  and  does  not  that  in 
eflCect  operate  in  the  same  way  that  it  would  if  the  board  had 
the  direct  power  to  make  the  restriction? 

Mr.  GLASS.  I  say  to  the  Senator  from  New  Mexico  that 
every  director  of  a  Federal  reserve  bank  must  be  a  resident  of 
his  Federal  reserve  district.  The  appointment  of  three  of  these 
directors  by  the  Federal  Reserve  Board,  as  the  Senator  from 
Ohio  will  recall,  was  resisted  by  the  banking  conununity  of  the 
United  States.  They  were  put  there  to  represent  the  interests 
of  the  Government,  because  the  Government,  under  the  opera- 
tions of  the  banks,  would  be  one  of  the  largest  depositors  in 
the  banks.  I  have  no  doubt  the  banking  community  to-day 
would  gladly  welcome  an  alteration  to  exclude  these  three  ap- 
pointed members  from  the  regional  boards. 

Answering  the  other  part  of  the  Senator's  inquiry,  I  will  say 
that  the  Federal  Reserve  Board  has  never,  since  it  was  inaugu- 
rated, offered  a  suggestion  to  a  Federal  reserve  bank  that  it 
should  or  should  not  make  rediscounts  or  apply  for  currency. 

Mr.  FLETCHER.  If  I  may  interrupt  the  Senator  just  on 
that  point,  is  it  not  true  that  the  power  to  fix  the  rate  of  re- 
discount is  the  power  to  control  circulation? 

Mr.  GLASS.  I  said  to  another  Senator  that  I  would  reach 
that  presently.  If  Senators  will  just  let  me  get  on,  I  hope  I 
shall  not  leave  any  phase  of  tlie  problem  untouched. 

Mr.  FLETCHER:  I  did  not  know  that  the  same  question 
had  been  presented.  It  seems  to  me  they  do  not  need  the  power 
to  control  circulation  as  long  as  they  have  the  power  to  control 
the  rate  of  rediscount. 

Mr.  GLASS.  Of  course,  the  power  to  fix  the  rate  of  redis- 
comit  is  a  fundamental  ba (iking  power  of  the  system. 

Mr.  JONES  of  New  Mes'ico.  Mr.  President,  I  am  sorry  to 
interrupt  the  Senator,  but  I  saw  the  statement  made  by  peo- 
ple who  were  supposed  to  know  and  be  advised  about  it,  that 
the  Federal  Reserve  Board  in  Washington  had  made  a  direct 
request  of  the  regional  banks  in  certain  sections  of  the  country, 
as  well  as  member  banks,  that  no  more  loans  of  a  certain  char- 
acter should  be  made ;  for  instance,  upon  live  stock.  Personally, 
I  was  never  able  to  find  out  from  any  authoritative  source  that 
such  a  thing  had  been  done,  and  I  should  like  to  know  whether 
or  not  the  Senator  has  any  information  upon  that  subject. 

Mr.  GLASS.  I  know  it  is  not  true,  I  will  say  to  the  Senator 
from  New  Mexico.  The  Federal  Reserve  Board  at  one  time  did 
what  Senafor  after  Senator  upon  this  floor  did.  In  one  of  Tts 
public  outgivings  it  suggested  that  there  ought  to  be  a  cessa- 
tion of  extravagance  in  this  country;  that  the  credits  of  the 
country  should  be  devoted  to  taking  care  of  the  necessities  of 
the  people  rather  than  the  luxuries  of  the  people.  Will  anybody 
864G9— 22174 


12 

question  the  Solomonic  wisdom  of  a  declaration  of  that  sort? 
The  board  has  never  at  any  time  indicated  to  a  bank  that  It 
should  not  engage  in  lawful  and  proper  rediscount  activities, 
and  has  never  denied  the  application  of  a  regional  bank  for  one 
ilollar  of  Federal  currency. 

Mr.  POMEKENE.  Mr.  President,  the  Senator  has  already  re- 
ferred to  the  fact  that  only  one-third  of  the  directors  of  the 
regional  banks  are  appointed  by  the  Federal  Reserve  Board. 
The  other  two-thirds  are  divided  into  two  classes,  one  repre- 
senting the  smaller  banks  and  the  other  representing  the  larger 
banks.  The  thought  struck  me  that  ordinarily  two-thirds  can 
control  one-third. 

Mr  GLASS.  There  has  never  been  any  suggestion  that  the 
one-third  were  in  any  degree  out  of  sympathy  with  the  agricul- 
tural, commercial,  or  industrial  requirements  of  their  particular 
•  region.  It  is  not  natural  to  suppose  they  ever  are.  They  are 
business  men  of  character  and  reputation.  Identitied  with  the 
particular  region.    Why  should  they  wish  it  harm? 

These  powers,  with  the  right  to  review  and  determine  re- 
discount rates,  are  conferred  by  the  law  on  the  Federal  Reserve 
Board  for  the  .security  of  the  banking  system  of  the  United 
States  and  to  insure  that  any  expansion  of  the  currency  shall 
be  upon  safe  and  sane  lines. 

BECKLE.SS  CHAnr.B  OF  DBFI.ATION. 

Tet,   Mr.    President,    with    these    restricted    powers   unexer- 
cised to  this  day,  the  Federal  Reserve  Board,  times  without 
number,  has  recklessly  been  charged  with  instituting  and  exe- 
cuting "  drastic  and  cruel  policies  of  deflation."    One  perfeiwid 
Senator  characterized  it  a  "  murderous  "  policy  of  discrimina- 
tion against  agricultural  produce.    What,  precisely,  is  meant  by 
this  charge?     It  can  signify  but  one  thing,  which  is,  in  plain 
terms,  that  the  Federal  Resen^e  Board  at  Washington,  without 
ianctlon  of  law,  ordered  Feileral  reserve  banks,  especially  those 
located   in   the  agricultural  regions,   to  curtail  or  stop  redis- 
counts or  that  the  board  refused  to  issue  currency  upon  applica- 
tion of  the  banks  or  that  the  board  did  both  these  things     The 
actual  truth  is,  Mr.  President,  the  Federal  Reserve  Board  did 
neither  of  these  things,  and  I  ehallcnge  the  production  here  or 
elsewhere  of  any  ftarticle  of  ei'iden-e  of  any  such  action  by  the 
Federal  Reserve  Board.     It  issued  no  such  order;  it  had  no 
right  to  issue  any  such  order.     And,  as  I  have  pointed  out,  while 
the  board  is  vested  by  law  with  explicit  authority  to  refuse  to 
issue  currency  or  to  tax  that  outstanding  in  order  to  influence 
its  redemption,  the  board  has  not  exercised  its  lawful  power  in 
either  respect.    Every  dollar  of  bank  credit  denied  was  with- 
held by  a  local  bank  or  regional  bank.    The  Federal  Reserve 
Board  had  nothing  to  do  with  it.     Every  dollar  of  currency 
retired  was  retired  by  a  local  bank  or  regional   bank     The 
board  had  nothing  to  do  with  it. 

By  whom,  then,  Mr.  President,  was  this  wicked  policv  of  defla- 
tion of  the  cretUts  and  currency  of  the  system  instituted  and 
what  were  the  agencies  employed  in  its  execution?  Each 
regional  bank  of  the  system  is  master  in  its  own  domain,  subject 
only  to  the  Federal  statutes ;  it  is  operated  by  men,  all  citizens 
•f  Its  territory'.  Two-thirds  of  its  directors  are  selected  by 
the  member  banks  in  its  territory.  These  men  are  presumed 
to  understand  the  conditions  and  to  know  the  requirements  of 
86469—22174 


13 


every  interest  in  the  territory,  agricultural,  commercir.:  or  in- 
dustrial. If  there  was  deflation,  '*  wicked  "  or  righteous,  mon- 
strous or  sane,  the  directors  of  these  respective  Federal  reserve 
banks,  in  larger  degree  than  any  other  agency  under  the  law, 
should  be  held  responsible  for  it. 

But  I  pointedly  deny  that  there  teas  deflation  of  either 
regional  reserve  hank  credits  or  any  diminution  of  Federal 
reserve  currency  for  the  period  of  the  appalling  drop  in  prices 
of  agricultural  products. 

INCONTUOVERTIBLE    FACTS    AND    riGURES. 

I  hope  Senators  will  take  particular  note  of  that  declaration 
and  convict  me  here,  if  tl\ey  can,  of  any  inaccuracy  that  apper- 
tains to  it.  Rhetoric,  whether  the  mo  ivc  of  it  be  harmless  or 
vile,  is  one  thing.  A  cold,  indisputable  fact  is  something  dif- 
ferent. In  all  this  fanfare  of  prejudice  and  vituperation 
there  has  not  been  given  one  authenticated  fact  or  flgure  to 
justify  the  assertion  that  the  Federal  reserve  banking  system 
was  appreciably  delinquent  or  in  any  degree  oppressive.  I  shall 
present  proof  to  the  Senate  that,  in  the  period  of  precipitated 
prices  of  farm  products,  there  was  a  constant  expansion  of 
regional  bank  credits  and  an  increase  in  the  volume  of  Federal 
reserve  notes  issued.  At  this  point  I  shall  insert  in  the  Record 
figures  furnished  me  by  the  Bureau  of  Statistics,  Department  of 
Agriculture,  giving  the  average  seasonal  price,  by  the  month, 
of  cotton,  wheat,  corn,  and  oats  from  July.  1919,  to  January, 
1921,  inclusive : 


1919. 

July 

August 

September 

October 

November 

December 

1920. 

January 

July...* 

August 

September 

October 

November 

December 

1921. 
Jauuary , 


Cotton. 


$C.  311 
.325 
.303 
.313 
.365 
.357 


.359 
.374 
.368 
.311 
.255 
.194 
.14 


.115 


Wheat. 


$2.22 
2.17 
2.06 
2.10 
2.13 
2.15 


2.32 
2.54 
2.32 
2.19 
2  14 
1.88 
1.44 


1.49 


Corn. 


fl.76 
1.91 
1.85 
1.54 
1.33 
1.35 


1.40 
1.86 
1.64 
L56 
1.21 
.87 
.68 


Oats. 


.67 


JO.  71 
.75 
.72 
.68 
69 
.72 


.78 
1.04 
.82 
.70 
.61 
.54 
47 


.46 


Mr.  President,  an  examination  of  these  figures  discloses  the 
fact  that  cotton,  quoted'  at  31.1  cents  in  July,  1919,  is  quoted  at 
37.4  cents  in  .July,  1920,  when  a  sharp  decline  set  in,  until 
for  January,  1921,  cotton  was  quoted  at  11.5  cents,  a  decline 
of  69.3  per  cent  from  July,  1920,  to  January,  1921. 

It  is  seen  that  oats  rose  from  71  cents  for  July,  1919,  to  $1.04 
for  July,  1920,  and  dropped  to  46  cents  for  January,  1921,  a  de- 
cline of  55.8  per  cent  from  July,  1920,  to  January,  1921. 

It  will  be  noted  that  wheat  rose  gradually  from  $2.22  for  July, 
1919,  to  $2.54  for  July,  1920,  and  fell  to  $1.49  for  January, 
1921,  a  decline  of  41.4  per  cent  from  July,  1920,  to  January.  1921. 
86460—22174 


u 


It  win  be  observed  that  com  fluetnated  from  $1.T6  for  July, 

1919,  to  $1.86  for  July,  1920,  and  fell  to  67  cents  for  January, 
1921,  a  decline  of  63.9  per  cent  from  July,  1920,  to  Januarys  1921. 

This  shocking  decline  in  tlie  produce  of  American  farmers,  a« 
well  as  a  less  acute  decline  in,  th«  products  of  our  milk,  is  a 
familiar  story  to  every  intelligent  business  man  of  the  country. 
If  it  can  be  established  that  for  this  period  from  Januai*y  1, 

1920.  to  January  1,  1921,  tlie  Federal  reserve  banks,  severally 
or  in  the  aggregate,  contracted  their  credits  and  diminished 
the  volume  of  their  note  issues,  those  who  charge  them  with  "  a 
drastic  and  cruel  policy  of  deflation  "  may  justify  the  accusation 
with  respect  to  these  regional  banks.  But  even  in  this  event 
they  can  get  no  sanction  for  tlieir  assaults  upon  the  Federal 
Reserve  Board,  which  does  not  initiate  bank  credits  nor  issue 
currency  except  upon  application  of  the  regional  banlvS.  Now, 
let  us  see  what  the  facts  are.  At  this  point  I  shall  place  in  the 
Recokd  an  authenticat^ed  statement  of  paper  held  under  dis- 
count for  member  banks  of  the  Federal  reser\"e  system  as  of 
January  1,  1920,  and  January  1,  1921 ;  likewise  a  statement  of 
the  volume  of  Federal  reserve  notes  in  circulation  on  January 
1,  1920,  and  on  January  1,  1921. 

Peper  held  under  rediscount  for  memher  haithsi  in  etteh  Fetieml  reserve 
district,  aUo  Federal  reserve  notea  in  circulation  on  Jan.  i,  1920  a»<l 
1921. 


Jederal  reserve  bank. 


Boston 

New  York 

Philadelphia . 

Cleveland 

Richmond. . . . 

Atlanta 

Chicago 

8t,  Louis 

Minneapolis . . 
Kansas  City.. 

Dallas 

San  Francisco 

Total... 


Paper  held  under  dis- 
count for  member 
banks- 


Jan.  1,1920. 


I1SS,039 

790,803 

237,300 

164, 517 

114,772 

88,052 

267,639 

77,679 

73,857 

110, 380 

28,371 

73,896 


2, 215, 305 


Jan.1, 1921. 


il55,293 
871,439 
155, 484 
122,182 
125,473 
166, 640 
475, 563 
114,933 

95,994 
139,402 

87,392 
167, 59S 


2,687,383 


Federal  reserve  notes  in 
circulation^ 


Jan.  1, 1920. 


1244,093 
807,616 
237,  ail 
j261, 738 
145,763 
155,511 
560,139 
145,298 

87,187 
104, 0S9 

74,930 
242,462 


3, 008, 878 


Jan  1, 192L 


$288,780 
867, 481 
278,322 
348,9.51 
155, 169 
173, 408 
545, 395 
135,785 
79,498 
111,578 
79,453 
272,463 


3,336,281 


CREDITS   INCREASE   AS  PRICES  DROP. 

An  analysis  of  these  statistics  shmcs  that  the  total  ammmt  of 
rediscounted  paper  held  by  the  12  regional  reserve  hanks  on 
January  1,  1020,  was  $2,213,305,000.  Instead  of  deflating  their 
credits,  as  has  been  charged,  these  banks  as  of  January  1,  1921^ 
had  increased  their  accommodations  to  member  banks  in  the 
aggregate  to  $2,687,393,000,  an  expansion  of  $^'f7 2, 088,000  vn  the 
12-vionth  period. 

If  any  Senator  can  controvert  this  fact,  I  pause  to  have  him 
do  it. 

Qn  January  1,  1920.  the  12  regional  reserve  banks  had  notes 
in  circulation  to  the  amount  of  $3,008,878,000.  Instead  of  reduc- 
ing circulation,  these  same  banks  on  January  1,  1921,  had  out- 
standing  circulation  aggregating  $3,336,281,000,  a  total  expan- 
S64G0— 22174 


15 


sion  of  currency  of  $328,Ji03,000  for  the  12-month  period  of  fall- 
ing prices. 

Will  any  Senator  say  that  that  is  not  true? 

Thus  it  vill  be  noted  that  so  far  from  the  truth  is  the  accu- 
sation that  the  Federal  Reserve  Board  "  tumbled  "  the  prices 
of  farm  products  by  a  cruel  policy  of  deflation,  it  is  shown  that 
during  the  whole  period  of  falling  prices  the  Federal  reserve 
banks  were  supplying  largely  increased  credit  facilities  and 
issuing  «  constantly  increasin(f  volume  of  Federal  reserve  notes. 

Mr.  HEFLTN.    ]Mr.  l»n>sident 

The  PRESIDING  OFFICER.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  Alabama? 

Mr.  GLASS.    I  yii^d. 

Mr.  HEFLIN.  I  do  not  want  the  Senator  to  got  the  impres- 
sion tliJit  I  a.gree  to  a  good  many  of  those  thin.c;s. 

Mr.  GLASS.  Oh,  I  do  not  set  the  impression  that  the  Sen- 
ator from  Alabama  asi"ees  with  a  single  one  of  those  things. 

Mr.  IIEFLIN.  Recause  I  expect  to  reply  to  the  Senator,  and 
I  want  him  to  know  that  I  disagree  with  him  on  several  of 
these  propositions. 

Mr.  GLASS.  I  would  have  assumed  that  without  any  state- 
ment from  the  Senator. 

INIr.  HEFLIN.  The  Senator  compliments  my  friendship  for 
the  people  of  the  country. 

]\Ir.  GLASS.  Oh,  :Mr.  President,  no  friendship  can  intervene 
where  a  great  and  vital  interest  of  the  country  is  concerned. 
I  believi'  it  was  the  Duke  of  (Uiise  who  once  was  bitterly  repri- 
manded by  the  Archbishop  of  Paris  for  exhibiting  some  degree 
of  acerbity  toward  a  friend.  The  prelate  asked  how  he  could 
reconcile  his  jittitude  with  his  professions  as  a  churchman,  and 
the  Duke  of  Guise  responded,  "  I  confess,  your  grace,  that  Christ 
taught  us  to  forgive  our  enemies;  but  I  think  you  will  search 
Scripture  in  vain  to  find  that  he  anywhere  admonished  us  to 
forgive  our  friends."  That  is  my  reply  to  the  Senator  from 
Alabama  when  he  appeals  to.  friendship  to  avert  criticism  of  his 
misi-epresentation  of  the  Federal  Reserve  Board  here  in  Wash- 
ington. 

Mr.  HEFLIN.     Mr.  President 

The  PRESIDING  ()FFI(U^]R.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  Alabama? 

Uv.  GLASS.     I  yield., 

Mr.  HEFLIN.  The  Senjitor  from  Virginia  misunderstood  me. 
I  said  that  he  was  complimenting  my  friendship  for  the  people 
af  the  country  and  my  desire  to  have  a  fair  deal  for  them,  and 
not  my  friendship  for  the  Senator,  which  is  great ;  we  are  per- 
gonal friends ;  but  I  am  not  appealing  to  that.  I  will  take  care 
of  the  Senator's  arguments  along  that  line. 

Mr.  GLASS.     Oh,  I  do  not  doubt  that. 

It  is  significant,  I\Ir.  President — and  I  call  the  attention  of  my 
distinguished  fiiend  from  North  Carolina  [Mr.  Overman]  to 
the  fact — that  these  increased  facilities  were  applied  for  and 
granted  at  the  increased  rate  of  rediscount  put  into  effect  by 
the  regional  reserve  banks  and.  approved  by  the  Federal  Reserve 
Board.  This  tremendous  expansion  of  Federal  reserve  credits, 
aggregating  nearly  $1,000,000,000  within  the  12-month  period  of 
falling  prices,  was  not  managed  except- by  an  alarming  encroach- 
864G9— 22174 


IC 

ment  upon  the  gold  reserves  of  the  regional  banks,  one  of  them, 
fts  I  reca'U,  barely  eseaping  the  humiliating  if  not  disastrous 
experience  of  having  its  gold  reserve  wiped  out  of  existence ;  it 
had  to  resort  to  the  expedient  of  largely  rediscounting  with 
another  Federal  reserve  bank  at  the  North. 

LOANS   TO  FARMERS. 

Let  me  anticipate  here  a  thought  which  may  have  place  in  the 
minds  of  some  Senators.  Doubtless  they  will  want  to  know  in 
what  sections  of  the  country  these  extensions  of  credit  pre- 
vailed, in  order  to  determine  whether  one  class  of  citizens  was 
discriminated  against  or  another  class  granted  peculiar  privi- 
leges by  the  Federal  reserve  banks.    We  shall  see : 

The  regional  bank  at  Richmond  accommodates  the  grain 
fruit,  tobacco,  and  cotton  portions  of  the  fifth  district.  Were 
Its  credits  deflated  or  its  note  issues  reduced  during  the  period 
of  falling  prices?  Not  at  all;  both  credits  and  circulation  were 
extended.  On  January  1,  1920,  the  Richmond  Federal  Reserve 
Bank  held  discounted  paper  to  the  amount  of  $114,772,000.  On 
January  1,  1921,  its  rediscounts  had  been  increased  to  Sl'^S- 
473,000,  or  more  than  $10,000,000.  On  Januarv  1,  19*^0  the 
Richmond  bank's  note  issue  amounted  to  $145,765,000;  on  Janu- 
ary 1,  1921,  the  bank's  note  issue  had  been  increased  to  $155  - 
169  000,  an  expansion  of  nearly  $10,000,000,  the  total  expansion 
m  currency  and  credits  being  about  $20,000,000  in  the  period 
of  falling  prices. 

The  Atlanta  Federal  Reserve  Bank,  which  is  in  the  cotton 
Belt,  as  the  junior  Senator  from  Georgia  [Mr.  Harris]  may  note, 
held  $88,052,(XK)  of  discount  paper  on  January  1,  1920  Was 
there  any  deflation  at  the  Atlanta  bank?  Not  a  bit ;  on  January 
I'li^^'  ^^^  rediscounts  had  about  doubled,  amounting  to  $166,- 
b40,000.  Its  note  issues  increased  from  $155,511,000  on  January 
1,  1920,  to  $173,406.0(X)  on  January  1,  1921,  a  total  increase  in 
credits  granted  of  $96,483,000  within  the  period  of  falling  prices. 

The  Chicago  Federal  Reserve  Bank,  accommodating  the  grain 
and  live-stock  section  of  the  country,  on  January  1,  1920,  had  a 
volume  of  $267,639,000  in  rediscounts,  and  during  the  period  of 
falling  prices  these  credits  had  increased  to  $475,563,000  on  Jan- 
uary 1,  1921.  It/  note  issues  for  the  same  period  increased  from 
$000,139,000  to  $545,395,000;  total  expansion,  $253,178. 

The  St.  Louis  Federal  Reserve  Bank,  accommodating  the  grain 
and  live-stock  territory,  on  January  1,  1020,  held  rediscounts 
aggregating  $77,079,000.  These  credits  increased  during  the 
period  of  falling  prices  to  $114,933,000.  Its  note  issues  were 
reduced  by  the  sum  of  $10,000,000;  aggregate  expansion  of  the 
bank's  credit  about  $37,000,000. 

The  Kansas  City  Federal  Reserve  Bank,  in  the  gi'ain  and  stock 
section,  had  $110,380,000  rediscounts  on  Januarv  1,  1920.  These 
credits  had  expandefl  to  $139,402,000  on  Januarv  1,  1921,  and 
Its  Federal  reserve  note  issue  had  increased  in  the  same  period 
$7,500,000;  total  expansion,  $36,522,000. 

The  Federal  res-erve  bank  at  Dallns  held  $28,371,000  in  dis- 
counted paper  on  January  1,  1920,  which  amount  had  been  more 
than  trebled  on  January  1,  1921,  totaling  $97,392,000.  For  the 
same  period  its  note  issue  increa.sed  about  $5,000,000,  aggregat- 
ing $79,453,000 ;  total  expan^Hon,  $74,021,000. 

The  San  Francisco  Federal  Reserve  Bank,  accommodating  the 
fruit,  dairy,  and  other  farm  industries  of  the  Pacific  States,  held 
8G4C0— 22174 


17 

$73,896,000  of  eligible  paper  on  January  1,  1920.  This  amount 
had  more  than  doubled  on  January  1,  1921,  when  it  reached 
$167,598,000.  This  bank's  note  issue  increased  from  $242,462,000 
to  $272,463,000,  an  increase  of  more  than  $93,000,000  in  credits 
and  $30,000,000  in  the  volume  of  its  notes. 

Mr.  President,  while  this  expansion  of  credits  was  taking 
place  in  the  agricultural  districts  of  the  United  States,  the 
notable  fact  is  disclosed  by  the  official  figures  that  there  were 
scarcely  any  increases  by  the  banks  located  in  the  great  indus- 
trial centers  of  the  country.  Senators  may  easily  examine  the 
table  and  ascertain  for  themselves  the  accuracy  of  this  state- 
ment. 

Mr.  POMERENE.    Mr.  President 

The  PRP:]SIDING  OFFICER.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  Ohio? 

Mr.  GLASS.    I  yield. 

Mr.  POMERENE.  Is  it  not  true  also  that  during  this  decline 
of  prices  there  was  an  advance  by  the  Federal  reserve  banks 
in  the  Industrial  districts  to  the  banks  in  the  other  sections  of 
about  $267,000,000? 

Mr.  GLASS.  The  Federal  reserve  bank  of  Cleveland,  in  the 
Senator's  own  State,  advanced,  as  I  recall — and  I  will  insert  in 
the  Record  the  exact  figures— $150,000,000,  and  perhaps  in  ex- 
cess of  that,  to  the  Federal  reserve  banks  in  the  agricultural 
regions  of  the  country.  It  did  not  have  to  be  compelled  to  do 
so  by  the  Federal  Reserve  Board,  but  took  the  action  on  its 
own  initiative,  or  perhaps  at  the  suggestion  of  the  Federal 
Reserve  Board. 

AMAZING    LIBERALITY    OP   RESERTH    BANKS. 

I  shall  anticipate  another  thought  which  doubtless  arises  in 
the  minds  of  Senators  who  may  desire  to  know  whether  strictly 
agricultural  credits,  as  distinguished  from  mercantile  and  in- 
dustrial credits,  were  diminished  during  the  period  of  falling 
prices.  The  figures  show  that  loans  on  agricultural  and  live- 
stock paper  increased  enormously  within  the  period  of  price 
precipitation.  At  this  point  I  will  insert  in  the  Record  a  table 
giving  the  loans  on  agricultural  and  live-stock  paper,  as  segre- 
gated, each  month  for  the  entire  year  of  1920,  showing  that  these 
loans  by  the  banks  in  the  agricultural  sections  increased  more 
than  fivefold,  while  prices  for  agricultural  products  were  fall- 
ing in  a  distressing  degree : 

Loans  of  Federal  reserve  banks  on  agricultural  and  livc-stocJc  paper  for 
"  1920. 

January ^ ?oG.  905,  000 

f'ebruary 67,  195,  000 

March  _. 74,  665,  000 

Anril       - 106,  382,  000 

May   ~     140,691,000 

June""- 16S,  038.  000 

July 202,  520,  000 

August - 210,  278,  000 

Sentember 224,  424,  000 

October !_:::: 240,  g49,  000 

November 241,  501,  000 

December 246,  940.  000 

The  figures  in  some  detail  show  that  at  the  Richmond  Federal 
Reserve   Bank    loans   on   this   kind    of   paper   increased    from 
$449,000  on  January  1,  1920,  to  $9,251,000  on  January  1,  1921. 
86460-22174 3 


18 

The  loans  of  the  Atlanta  Fefleral  Reserve?  Bank  on  paper  of 
this  character  increased  from  $841,000  on  January  l,  1920,  to 
$1G,S31.0CK)  on  January  1,  1921. 

Why,  Mr.  President,  I  am  amazed  at  the  broad  liberality  ot 

this  regional  reserve  banking  system  in  that  distressing  time. 

■.  Had  I  any  criticism  to  make  of  its  administration  it  would  be 

I  that  It  too  far  transgressed  the  requireinents  of  safe  banking. 

;     The  Federal  reserve  bank  at  Dallas  on  January  31,  1920,  had 

only  $4,450,000  on  agricultural  and  live-stock  paper,  which  was 

increased  to  $31,251,000  by  January  1,  1921. 

The  Kansas  City  Federal  lieserve  Bank  increased  its  loans  on 
this  kind  of  paper  from  $20,022,000  on  January  31,  1920,  to  $46,- 
840,000  on  January  1,  1921,  during  the  period  of  falling  prices. 

The  Fe<lei-al  reserve  bank  at  St.  Louis  on  January  31,  1920, 
held  but  $294,000  of  agricultural  and  live-stock  paper,  which 
amount  by  January  1,  1921,  had  been  increased  to  $4^96,000 
during  tlie  period  of  falling  prices. 

The  Federal  reserve  bank  at  Minneapolis  held  on  January 
81,  1920,  only  $6,855,000  of  agricultural  and  live-stock  paper. 
On  January  1,  1921,  it  held  $53,896,000  of  strictly  agricuitui'al 
paper. 

The  Chicago  Federal  Reserve  Bank  on  January  1,  1920,  was 
loaning  but  $12,783,000  on  agricultui-al  and  live-stack  paper, 
whereas  on  January  1,  1921,  it  had  increased  these  loans  t9 
^52,695,000  during  the  period  of  falling  prices. 

I  would  call  the  attention  of  the  Senate  to  this  significant 
fact  in  this  connection: 

These  figures  constitute  loans  made  to  the  agricultural  inter- 
ests of  the  country  on  paper  having  a  maturity  of  six  months, 
whicli  paper  may  easily  be  segregated ;  but  the  figures  are  not  an 
index  to  the  full  volume  of  agricultural  loans,  because  hundreds 
of  millions  of  dollars  of  conmiercial  loans  are  made  to  tha 
farmers  of  the  country  on  paper  of  90  days'  maturity.  Indeed^ 
by  reference  to  page  17  of  the  last  anjiual  report  of  the  Federal 
Reserve  Board  it  will  be  seen  that  11  of  the  Federal  resei-ve 
banks,  excluding  the  New  York  bank  altogetiier,  made  loans  for 
farm  and  dairy  purposes  for  the  year  1920,  comprising  the 
period  of  failing  prices  for  farm  products,  aggregating  $1,980,- 
063,000  as  against  $729,266,000  for  a  like  period  of  191^;  and 
this  great  volume  of  credit  does  not  include  the  large  amounts 
advanced  on  cotton,  wool,  and  similar  lines  by  the  greater  banks 
of  the  system. 

THE     ST  STEM     NOT    SECnONAL. 

Mr.  Pre<5idont.  I  am  not  speaking  for  any  section  of  the  coun- 
try or  against  any  section  of  the  country.  I  ain  not  speaking 
for  the  Democratic  Party  or  for  the  Republican  Party.  I  de- 
spise the  conception  of  the  man  who  thinks  that  we  should 
harass  and  corrupt  this  gi'eat  Federal  banking  institution  by  in- 
troducing polities  into  its  administration  or  political  henchmen 
into  its  personnel.  Once  that  is  done,  the  system  is  gone  beyond 
reclamation.  I  am  speaking  for  the  integrity  of  this  great 
Federal  reserve  banking  system,  which  saved  every  section 
of  the  country  in  a  time  of  unprecedented  disturbance,  wi^en 
all  the  world  beside  was  going  into  financial  chaos  and 
being  wrecked  almost  beyond  recovery.  But  it  is  a  fact  of 
some  significance  that  the  Federal  resen^e  banks  of  the 
Korth,  without  compulsion  of  any  kind,  went  largely  to  the 
86469—22174 


19 

assistance  of  the  agricultural  interests  of  the  South  and  West. 
At  one  time,  in  October,  1920,  in  the  crop-moving  period  of  that 
year,'  when  the  prices  of  agricultural  products  were  going  down, 
the  Federal  Reserve  Bank  of  Cleveland  alone  was  loaning  to  the 
reserve  banks  in  the  West  and  South  no  less  than  $145,800,000, 

Mark  this :  The  loans  of  the  Federal  reserve  bank  at  Cleve- 
land in  the  South  and  AVest  exceeded  its  total  loans  to  member 
banks  of  its  own  district,  including  the  banks  of  the  great 
cities  of  Pittsburgh,  Cleveland,  and  Cincinnati,  the  greatest 
industrial  district  of  the  United  States. 

These  funds  were  derived  from  the  stockholding  banks  of  that 
district;  they  represented  the  vision,  the  enterprise,  the  activi- 
ties of  the  men  and  industries  of  that  territory.  Yet,  in  an 
effort  to  save  a  distressing  situation  they  were  loaned  to  the 
banks  in  the  agricultural  regions  of  the  United  States.  And  so 
also  did  the  Federal  reserve  banks  at  Boston  and  Philadelphia 
and  New  York,  by  permission  of  the  Federal  Reserve  Board, 
loan  from  their  funds  to  western  and  southern  Federal  reserve 
banks  for  the  relief  of  the  agricultural  situation  in  those  sec- 
tions. Indeed,  the  Dallas  Federal  Reserve  Bank  borrowed  con- 
tinuously from  the  northern  reserve  banks  from  the  spring  of 
1920  to  December  15,  1921.  Minneapolis  just  finished  paying 
out  of  debt  to  these  banks  last  November,  and  Richmond  and 
Atlanta  last  December.  Happily,  all  of  the  Federal  reserve 
banks  are  now  above  their  reserve  requirements,  each  standing 
on  its  own  resources,  with  the  ability  and  the  willingness  to 
take  care  of  all  reasonable  credit  requirements.  It  was  the 
palpable  intent  of  the  law  that  they  should  do  this.  It  was  never 
intended  that  interregional  discounts  should  be  a  normal  process 
of  this  system. 

NOT   A    CENTRAL    BANK. 

Some  Senators  seem  to  imagine  that  we  have  a  central  bank- 
ing system  in  this  country.  The  amazing  statement  is  made 
here  that  Congress  in  1913  adopted  a  slightly  modified  form  of 
the  Aldrich  bill,  which  did  provide  a  central  banking  institution. 
No  greater  misconception  was  ever  projected  in  this  Senate 
Chamber,  and  no  man  on  earth  knew  better  than  Mr.  Aldrich 
himself  that  a  statement  of  this  kind  involves  a  total  misunder- 
standing either  of  the  provisions  of  the  Aldrich  bill  or  the 
essential  provisions  of  the  F#ederal  reserve  statute.  We  have 
no  central  bank,  and  the  Federal  Reserve  Board  sitting  at 
Washinyton  has  no  right,  except  in  circumstances  threatening 
the  financial  fabric  of  the  Nation,  to  even  order  one  Federal 
reserve  bank  to  rediscount  the  discounted  paper  of  another 
regional  bank.  Even  in  a  financial  crisis,  such  as  the  law  con- 
templates, it  requires  the  affirmative  action  of  at  least  five  of 
the  seven  members  of  the  Federal  Reserve  Board  to  compel 
one  of  these  regional  reserve  banks  to  rediscount  for  the  other. 
Hence,  when  gentlemen  talk  about  the  great  resources  and  earn- 
ing assets  of  this  or  that  Federal  reserve  bank  and  imagine 
that  these  resources  are  available  as  a  normal  process  for  use 
in  other  regions,  they  simply  display  a  lamentable  ignorance 
of  the  Federal  reserve  banking  system,  both  as  to  the  text  and 
i7itent  of  the  law.  When  the  junior  Senator  from  Alabama 
assumes  that  the  contemplated  expenditure  of  a  certain  sum  of 
money  for  a  regional  reserve  bank  building  in  New  York 
operates  to  restrict  the  banking  credits  of  cotton  planters  in  the 
86469—22174 


20 


South,  he  is  talking  pitifnl  nonsense.  What  have  affricultnral 
ci-edits  in  the  S(njth  to  do,  dire^rtly  or  indirectly,  with  a  bank 
bnilding  in  New  York  or  Chicago  or  Cleveland  or  San  Francisco? 
It  mij?ht  as  well  be  said  that  the  s<,'hool  children  of  Birmingham 
or  Richmond  have  tlieir  educational  facilities  wickedly  impaired 
because  the  school  board  at  New  York  or  Boston  has  been  or 
contemplates  spending  more  money  for  educational  purposes 
next  year  than  all  the  Soutliem  States  combined.  That  sort  of 
talk  is  not  even  specious;  it  is  such  arrant  nonsense  that  I 
should  not  like  to  believe  it  can  deceive  the  very  simplest 
among  those  who  are  the  accustomed  victims  of  demagogy! 

THE  CASE  CXBARLY  PROVED. 

Presently,  Mr.  President,  I  shall  brietly  discuss  the  question  of 
bank  building  and  bank  salaries.  For  the  moment  I  desire 
sharply  to  draw  the  attention  of  the  Senate  and  the  country 
to  the  incontestable  fact  that  the  authentic  figures  wiiich  I  have 
presented  pi^oi^e  hcyond  controversy  that  the  cranking  decline  in 
the  prices  of  farm  products  was  not  caused  dy  the  Federal 
Reserve  Board  at  Was7iinfrton  nor  by  any  policy  adopted  or 
pursued  hy  the  Federal  reserve  tanks  throughout  the  country. 

These  figures  prove  hcyond  all  controversy  that,  instead  of 
deflating  credits  and  currency,  the  Federal  reserve  tanks,  during 
the  period  of  falling  prices,  enormously  expanded  bank  oredtts 
and  increased  the  volume  of  circulating  notes.  This  is  espe- 
cially true  Kith  respect  to  credits  in  the  agricultural  sections 
of  the  Inited  States,  for  it  appears  from  the  official  figures 
that  while  agricultural  credits  ivere  expanding  commercial 
credits  were  contracting.  Federal  reserve  hanks  in  the  great 
money  centers  carrying  an  aggregate  of  $Ji67,000,000  in  bankers' 
acceptances  this  last  summer  were  carrying  less  than  $^0,000,000 
of  these  acceptances. 

The  figures  show  a  decline  in  commercial  credits  secured  by 
Government  securities  of  nearly  .51,000,0<X>,0(K)  in  that  period. 
What,  then,  becomes  of  this  charge  of  *'  cruel  and  wicked  and 
murderous "  deflation  of  farm  credits  by  the  Federal  reserve 
banks  under  orders  from  the  Federal  Reserve  Board? 

Mr.  President,  any  self-respecting  board  of  directors  of  any 
one  of  these  Federal  reserve  banks  would  doubtless  resent  an 
order  from  the  Federal  Reserve  Board  to  abandon  its  redis- 
counting  operations.  Tiie  board  has  no  lawful  authority  to 
issue  any  such  order.  These  rediscounts  frequently  take  place 
without  the  immediate  knowledge  or  consent  of  the  Federal 
Reserve  Board.  It  is  only  when  currency  is  desired,  when  ap- 
plication is  made  for  the  Issuance  of  Federal  reserve  notes,  or 
when  a  regional  bank  depletes  its  gold  reserve,  that  the  inti- 
mate knowledge  and  supervisory  power  of  the  Federal  Reserve 
Board  is  brought  into  effect. 

What,  then,  becomes  of  the  charge  of  "murderous  deflation" 
when  it  is  examined?  It  takes  its  place  in  the  limbo  of  dis- 
carded fiction.  For  my  part,  I  fervently  thank  God  that  I  have 
no  responsibility  for  its  inception  or  its  propagation  or  tlie  dis- 
semination of  its  vile  odors.  No  one  will  ever  be  able  to  com- 
pute the  amount  of  damage  done  by  this  misrepresefatation  and 
the  harmful  use  made  of  it  by  erupting  politicians.  The  truth 
in  one  sentence  is  that  falling  prices  caused  the  deflation  of 
credits  and  currency,  such  as  tee  have  tvitnessed  since  January 
of  last  year,  and  not  deflation  of  credits  the  fall  in  prices, 
8G4C9— 22174 


21 


WHY   PRICES    TUMBLED. 

Mr.  President,  the  crash  in  commodity  prices  in  the  summer 
and  fall  of  1920  is  not  a  hidden  mystery.  It  did  not  require  a 
Joint  Commission  of  Inquiry  to  be  ascertained,  although  I  am 
profoundly  thankful  that  such  a  commission  instituted  a 
thorough  investigation  of  the  subject.  The  storm  was  nievitable ; 
discerning  men  saw  it  brewing  and  were  prepared  when  it 
burst  It  was  not  peculiar  to  this  country;  its  sweep  was 
through  the  whole  world.  First,  it  tore  asunder  economic  con- 
ditions in  Japan.  The  disaster  there  almost  instantly  reflected 
itself  by  the  break  in  the  silk  market  in  March  of  1920.  The 
next  manifestation  of  distress  was  in  May,  when  the  wool 
industrv  utterly  collapsed  and  we  had  presented  the  phenomeiia 
of  wooi  cheaper  than  cotton.  Then  came  the  break  in  hides 
and  leather;  then  in  sugar,  wheat,  cotton,  corn,  oats—all  con- 
spiring to  create  alarm  and  to  occasion  distress  throughout  the 

country.  ^     ,  ,^„ 

Did  deflation  of  credits  by  the  Federal  reserve  banks,  on  older 
of  the  Federal  Reserve  Board,  cause  the  crisis  in  Japan?  Did 
a  restriction  of  credit  ciiuse  the  violent  prostration  of  the  wool 
industry?  l>hl  the  drop  in  sugar,  whidi  threatened  a  mora- 
torium in  Cuba  and  which  came  not  far  from  wrecking  one  of 
the  great  banking  institutions  of  this  country  because  of  a 
satiety  of  credit,  have  its  origin  in  any  policy  of  the  Federal 
reserve  banking  system?  If  not,  how  may  it  rationally  be 
contended  that  a  restriction  of  credit,  whicli  never  took  place^, 
by  an  .order  which  was  never  issued,  is  responsible  for  the  crash 
in  prices  of  other  commodities? 

Mr.  President,  we  are  accustomed  to  get  periodically  more  or 
less  definite  estimates  of  crop  production,  and  then  think  we 
have  envisaged  the  entire  pi'oblem  of  prices  for  a  given  time. 
As  a  matter  of  fact,  we  have  only  half  of  the  picture.  It  may 
be  told  with  a  reasonable  degree  of  certainty  what  will  be  the 
supply,  but  nobodv  can  ever  tell  what  will  be  the  demand  for 
the  products  of  farm  or  factory.  Senators  know  perfectly  well 
that  all  continental  Europe,  as  well  as  the  Near  and  Far  East, 
has  been  embroiled  in  war  and  plagued  by  economic  disasters 
since  the  armistice  was  proclaimed ;  so  that  our  foreign  markets 
were  dislocated. 

Moreover,  the  peak  of  extortionate  prices  in  this  country  had 
all  but  pierced  the  cloutls  in  the  early  summer  of  1920,  exceed- 
ing actually  the  highest  point  of  the  war  period. 

I  pause  to  remark  that  we  are  a  peculiar  people  in  America. 
For  months  and  months  Senators  and  newspapers  throughout 
the  country  were  denouncing  profiteering  in  the  prices  of  com- 
modities and  of  all  conceivable  articles  of  commerce.  They  were 
eager  to  put  the  profiteers  in  jail.  They  wanted  to  impeach  the 
Attorney  General  of  the  United  States  for  not  quickly  putting 
them  in  jail.  Then,  when  the  drop  came,  these  impatient  souls 
denounced  the  Federal  Reserve  Board. 

THE  SENATE  ORDERED  DEFLATION. 

Mr.  McLEAN.  I  remind  the  Senator  that  in  May,  1920,  we 
passed  a  resolution  for  an  investigatioii  of  the  cause  of  high 
prices,  and  at  that  time  condemned  the  Federal  Reserve  Board 
for  not  raising  its  rediscount  rate. 

Mr.  GLASS.  Yes;  and  I  shall  show  that  you  practically 
undertook,  without  any  authority  of  law,  to  compel  the  Fed- 
86469—22174 


22 

eral  Reserve  Board  to  raise  its  rediseonnt  rate.  The  Senate 
voted  for  a  reHolution  unnnitnon'dff,  offered  hy  the  diatinguished 
Senator  from  Montana  [Mr.  Myeu.s],  demanding  to  knoic  v)hat 
the  Federal  Reserve  Board  had  done,  or  tvhat  it  purposed  to 
do,  to  deflate  the  eredits  and  enrreney  of  tJtc  country.  Senators 
are  maklner  me  anticipate  my  speecli. 

[At  this  point  Mr.  Glass  yielded  the  floor  for  the  day.] 

Tuesday,  January  17,  1922. 

Mr.  GLASS.  Mr.  President,  when  the  Senate  recessed  on 
yesterday  1  had  covered  those  phases  of  the  problem  under  dis- 
cussion Vhicli  rehited  particularly  to  the  question  of  alleged 
deflation  of  credits  and  currency  in  this  countiy  and  was  undei'- 
taking  to  describe  the  causes  and  course  of  the  fall  iu  prices. 

CONSLMKItS    ON    STRIKE. 

Tlie  peak  of  extortionate  prices  in  the  United  States,  as  I 
said  before,  had  all  but  pierced  the  clouds  in  the  early  summer 
of  1920,  exceedin.i?  actually  the  highest  point  of  the  war  period, 
and  the  i*eople  of  the  United  States  had  become  tired  of  being 
profiteered  and  the  people  of  Europe  could  no  longer 
pay  the  prices.  At  home  and  abroad  the  people  in  their 
righteous  indignation  went  on  strike,  as  it  were,  against  the 
protiteers.  That  vitally  affected  the  situation,  because  when  tlie 
people  once  began  to  do  without  luxuries,  by  the  very  processes 
of  psychology  they  began  to  economize  in  the  more  necessary 
things  of  life.  The  demand  for  all  products  was  thus  enor- 
mously diminished.  Then  railroad  rates  were  skyrocketed,  not 
alone  putting  a  tax  on  the  things  which  the  farmer  must  trans- 
port to  market,  but  likewise  on  everything  which  the  farmer 
was  compelled  to  bring  back  to  the  farm.  Building  was  reduced 
to  the  minimum,  road  construction  was  stopped,  furnaces  from 
one  end  of  the  country  to  the  other  were  banked,  unemployment 
to  a  frightful  extent  ensued ;  and  all  tliis,  Mr.  President,  for  no 
lack  of  credit  facilities,  but  for  lack  of  markets  in  which  to  sell 
the  products  of  farm  and  mill  and  factory.  There  is  the  pic- 
ture! Why  not  tell  the  farmer  and  everybody  else  the  truth 
about  the  thing?  Why  invent  the  wretched  fiction  about  defla- 
tion of  bank  credits,  and  by  this  false  predicate  seek  to  impair 
the  usefulness  and  ultimately  to  destroy  a  banking  system  that 
preserved  this  country  from  cliaos  and  that,  if  let  alone,  will 
restore  the  flnancial  equilibrium  of  tlie  world,  if  it  be  uot 
already  beyond  restoration? 

WHi"    FAKMKUS    SUFFERED    FIRST. 

The  consequences  of  this  crash  in  commodity  prices  were 
more  pitiful  to  the  American  farjner,  because  the  pelting  storm 
found  him  defenseless  and  without  shelter.  The  factory  men 
and.  mercantile  ijiterests,  both  jobbers  and  retailers,  have  better 
insurance  against  sudden  collapse.  They  are  more  compactly 
organized;  they  may  longer  resist  falling  prices  than  the  farmer. 
I  do  not  charge  that  tiiey  are  more  acquisitive;  but  at  least 
they  do  not  And  themselves  obliged  to  accept  their  losses  as 
promptly  as  the  farmer.  ThLs  Ls  why  the  farmer  was  hit  first, 
and  hit  hardest  and  sulfered  most.  Why  not  tell  the  farmer  the 
truth  and  advise  him,  if  he  would  escape  the  consequences  of 
another  such  disaster,  he  should  organize;  organize,  Mr.  Presi- 
dent, not  to  be  the  plaything  or  the  instrument  of  designing  poli- 
ticians, but  organize  for  an  intelligent  investigation  and  pursuit 
86iGy— 22174 


I 


23 

of  economics ;  organize  for  a  cooperative  marketing  of  his  prod- 
uct ;  organize,  if  it  may  seem  desirable,  for  the  cooperative  pur- 
chase of  his  requirements;  organize  for  an  intelligent  under- 
standing of  the  source  and  volume  of  demand  for  farm  products. 
I  commend  to  the  consideration  of  every  intelligent  American 
farmer  the  report  of  the  Joint  Commission  of  Inquiry  upon  the 
Agricultural  Crisis  and  Its  Causes;  and  to  indicate  that  I 
have  not  to-day  in  anywise  misstated  the  situation,  I  will  here 
quote  a  paragraph  to  be  found  on  page  17  from  the  report  in 
question  on — 

THE  BREAK  IN  TRICES. 

The  crisis  was  not  confined  to  this  country.  The  avalanche  of  de- 
clining prices  and  its  attending  hardships,  sacrifices,  and  losses  involved 
the  whole  world.  It  began  in  distant  Japan  with  the  break  in  the  silk 
market  and  the  Chinese  boycott  of  Japanese  goods.  It  traveled  the 
circle  of  the  Far  East,  Australia,  India.  Java,  Lngland,  ^*,r|V^ce,  Italy, 
the  whole  of  Europe,  South  America,  Canada,  and  the  Lnlted  btates. 
It  embraced  all  countries  and  all  industries,  though  not  to  the  same 
extent  or  in  the  same  way. 

Mr  President,  the  difiiculties  of  the  farmers  of  the  United 
States  can  not  be  cured  by  listening  to  the  sickening  rhetoric 
of  politicians  or  piX)fessional  agitators,  llecurrent  distress  can 
not  be  averted  by  indefensible  assaults  upon  the  integrity  of  the 
Federal  reserve  system  or  defamatory  accusations  against  the 
clean  courageous,  trained  men  who  are  engaged  in  its  adminis- 
tration The  farmers  of  the  country  can  be  helped  in  two  prac- 
tical ways,  one  of  which  involves  the  strengthening  rather  than 
impairment  of  the  Federal  reserve  system  itself. 

NGN  MEMBER   BANKERS   POWERLESS. 

I  draw  the  attention  of  Senators  from  the  agricultural  sec- 
tions of  the  country  to  the  fact  that  a  large  part  of  the  banking 
power  of  their  States  is  wholly  independent  of  the  Federal 
reserve  banking  system  and  refuses  to  avail  itself  of  the  tre- 
mendous advantages  of  the  system.  In  the  South  42  per  cent  of 
the  banking  power  of  that  entire  section  is  lodged  with  nonmem- 
ber  banks,  institutions  which  had  no  access  in  the  recent  crisis 
to  the  currency  vaults  or  credit  facilities  of  the  Federal  reserve 
banks  They  were  powerless  to  help  the  situation  because  they 
could  'not  avail  themselves  of  the  rediscount  privileges  of  this 
great  banking  institution.  „,   ,    ,      ,      -,". ,     ,    * 

Very  likely,  Mr.  President,  most  of  the  State  banks  did  what 
they  could  in  the  circumstances ;  possibly  they  responded  to  the 
limit  of  their  facilities  to  the  demand  of  tlie  agricultural  inter- 
ests for  bank  credit ;  but  they  were  not  members  of  the  Federal 
reserve  banking  system  and  had  no  access  to  its  advantages. 

In  the  Middle  Western  States  39  per  cent  of  the  banking 
DoWer  of  all  that  region  is  lodged  with  banks  which  do  not 
belong  to  the  Federal  reserve  system ;  they  likewise  were  power- 
less to  help  in  this  crisis  which  so  afflicted  not  only  the  agricul- 
tural interests  but  every  interest  in  this  country. 

In  the  far  W^estern  States,  the  great  grain-growing  section,  50 
per  cent  of  the  banking  power  of  that  region  is  lodged  m  banks 
that  are  not  members  of  the  Federal  reserve  system ;  they  are 
powerless,  beyond  their  own  restricted  resources,  to  aid  in  any 
national  crisis.  And  in  the  Pacific  States  36  per  cent  of  the 
banking  power  is  lodged  in  banks  outside  the  Federal  reserve 
system.  These  nonmember  banks  have  total  resources  amount- 
ing to  $19,144,393,000,  whicli  were  availed  of  in  that  crisis  to 
86469—22174 


24 


25 


©nly  a  limited  extent  because  these  bank*  were  not  members  of 
the  Federal  reserve  system. 

A    STABTLING    FACT, 

If  some  Senators  will  {?o  home  and  talk  sense  to  bankers  who 
remain  ontside  the  pale  of  protection,  instead  of  talking  nonsense 
to  farmers  and  arousing  prejudice  against  the  Federal  reserro 
banking  system,  which  has  afforded  them  protection,  something 
worth  while  will  be  accomplished.  Why,  Mr.  President,  on 
August  22,  1007,  when  that  great  financial  crash  which  started 
in  New  York  traversed  this  country,  the  total  rediscounts  and 
bills  payable  of  all  national  banks  in  the  United  States  was 
but  $59,177,000.  I  ask  Senators  particularly  to  note  this  fact: 
All  the  rediscounts  and  bills  payable  of  all  the  national  banks 
of  the  United  States  on  the  22d  day  of  August,  1907,  under  the 
old  bank  system,  were  but  $59,177,000,  whereas  in  the  month 
of  October,  1020,  in  the  midst  of  falling  prices,  the  Federal  Re- 
serve Bank  of  Kansas  City  alone  advanced  the  member  banks 
of  the  sinfjle  afjrieultnral  State  of  Nebraska  over  $38,000,000, 
which  was  more  than  half  the  entire  amount  of  rediscounts 
and  bills  payable  of  all  the  national  banks  of  the  United  States 
when  tlie  great  crash  came  In  1907. 

The  Federal  reserve  bank  at  Richmond  during  the  recent 
crisis  loaned  the  member  banks  of  the  single  State  of  South 
Carolina  $21,105,000,  nearly  as  much  as  one-half  of  the  total 
rediscounts  and  bills  payable  of  all  the  national  banks  in  the 
United  States  under  the  old  banking  system  in  the  panic  of 
1907.  And  so  I  might  go  from  State  to  State  pointing  out  the 
vast  advantages  of  the  system,  the  incomparable  aid  rendered  by 
It,  and  yet  Senators,  ignoring  these  great  achievements,  persist 
in  misrepresenting  the  operations  of  this  institution  to  the  farm- 
ers of  the  country. 

BANKS  ALARMINCLY  EXTENDED. 

The  distinguished  senior  Senator  from  South  Carolina  [Mr. 
Smith],  who  is  by  no  means  a  stranger  to  this  system  or  tile 
system  to  the  Senator,  who  had  something  to  do  with  its  fabri- 
cation, and  who,  I  am  glad  to  be  told,  has  renounced  his  sug- 
gestion to  legislate  out  of  olllce  the  Governor  of  the  Federal  Re- 
serve Board 

Mr.  S.AIITH.  Mr.  President,  will  the  Senator  allow  me  to 
make  a  statement  right  there? 

Mr.  GLASS.     I  yield. 

IVrr.  SMITH.  It  was  a  coincidence  that  at  that  time  section  2 
of  the  proposed  bill  that  I  introduced  under  its  terms  would 
have  had  the  elfect  of  legislating  the  governor  of  the  system 
out  of  office. 

Mr.  GLASS.  I  accept  that  statement.  I  was  merely  re- 
ferring to  the  effect  of  the  proposed  legislation. 

Mr.  SMITH.  I  understand ;  but,  inasmuch  as  the  impres- 
sion has  gone  abroad  that  that  was  the  object  of  the  legisla- 
tion I  want  to  state — and  I  know  the  Senator  from  Virginia 
is  glad  to  correct  that  impression — that  it  was  entirely  errone- 
ous. 

Mr.  GLASS.    Absolutely  so. 

Mr.  SMITH.  When  that  bill  was  drafted  none  of  us,  includ- 
ing myself  who  drafted  it,  had  any  knowledge  whatever  as  to 
whom  it  would  effect.  We  merely  provided  that  the  first  va- 
cancy should  be  availed  of  because  we  vvantid  to  expedite  the 

8G469— 22174 


I 


presence  on  the  board  of  a  man  identified  with  the  agricultural 
inteiests. 

Mr.  GLASS.  I  accept  that  statement  fully,  Mr.  President; 
but  I  fear  my  friend  may  entertain  a  misconception  as  to  what 
was  done  or  left  undone  in  South  Carolina  by  the  Federal  re- 
serve bank  of  that  district  in  the  unprecedented  crisis  of  1920, 
I  do  not  know  and  do  not  undertake  to  say  anything  about  the 
credit  facilities  afforded  by  nonmember  banks  of  South  Caro- 
lina ;  but  the  figures  show  there  was  scarcely  a  member  bank  in 
that  great  cotton  State  which  was  not  amazingly  expanded  be- 
yond its  basic  line  of  credit  with  the  Federal  reserve  bank  at 
Richmond  during  the  entire  period  of  falling  prices.  I  have  the 
list  on  my  desk  here  now,  I  have  the  figures  from  other  States. 
There  were  not  many  borrowing  banks  in  the  Stale  of  the  emi- 
nent Senator  from  Alabama,  the  basic  credit  of  which  was  not 
tremendously  exceeded.  There  were  some  banks  fh  Alabama — 
national  banks,  member  banks — entitled  to  a  basic  line  of  credit 
of  $8,000,000  in  that  period  which  did  not  borrow  one  dollar 
from  the  Federal  reserve  bank  in  order  to  assist  the  farmers  of 
that  State  and  section?  Wliy  does  not  the  Senator  go  home  and 
assail  these  local  banks,  not  one  of  which  borrowed  as  much  as 
one  dollar  from  the  Federal  reserve  banks,  although  they  were 
entitled  to  a  basic  line  of  credit  of  $8,000,000 ;  and  had  they  fol- 
lowed the  example  of  banks  in  Alabama  and  other  States  and 
transcended  their  basic  line  ten  times  they  might  have  bor- 
ro\^ed  many  times  $8,000,000  from  the  Federal  reserve  bank  in 
order  to  help  their  farmers,  whereas  they  did  not  borrow  a 
dime.  Why  did  they  not  borrow?  The  rediscount  rate  at  that 
time  was  but  G  per  cent.  They  had  a  margin  of  2  per  cent. 
Why  did  they  not  borrow  if  it  would  help  the  farmer?  Why 
come  here  and  denounce  the  Federal  reserve  banking  system 
when  the  trouble,  if  there  was  really  a  deficiency  of  credit, 
was  inherent  at  home? 

Mr.  President,  to  give  the  laymen  in  the  Senate — one  of  wliora 
I  am — a  concrete  illustration  of  how  the  Federal  reserve  banks 
went  to  the  rescue  of  business  in  the  cotton  territory  of  the 
United  States,  let  me  present  some  facts  and  figures : 

Here  is  a  South  Carolina  national  bank  entitled  under  tho 
rule  of  basic  credit  to  borrow  $29,000  from  the  Federal  reserve 
bank  at  Richmond.  On  June  30,  1920,  when  cotton  Avas  about 
at  its  peak,  it  was  borrowing  $74,000,  until  by  progressive  stages 
is  was  borrowing  on  June  30,  1921,  $212,000  from  the  Federal 
reserve  bank.  Think  of  it!  It  was  entitled  to  borrow  as  its 
fair  quota,  $29,000,  and  it  borrowed  $212,000.  Here  is  another 
bank  AAiiich  was  entitlod  to  borrow  $37,000  from  the  Federal 
reserve  bank  at  Richmond.  On  June  30,  1920,  it  was  borrowing 
$91,000  when  cotton  was  highest.  On  a  falling  market  it  man- 
aged to  increase  its  loans  at  the  Federal  reserve  bank  to  $200,000. 
Here  is  another  little  bank  with  a  basic  line  of  credit  at  the 
Federal  reserve  bank  of  $23,000  in  that  period  of  stress ;  it  bor- 
rowed from  tlie  reserve  system  $111,000 ;  and  another  little  bank, 
entitled  to  borrow  $46,000,  was  loaned  $235,000  by  the  Federal 
reserve  bank  at  Richmond. 

These  furnish  a  fair  example  of  the  operations  of  the  smaller 

banks  of  this  State.    Here  is  a  larger  bank,  entitled  to  borrow 

$578,000  from  its  Federal  reserve  bank ;  it  borrowed  $1,407,000. 

Here  is  another  entitled  to  borrow  $468,000  as  its  quota  of 

8G469— 22174 


26 


cre(lit5?  nt  the  Federal  reserve  bank;  to  meet  emergency  it  was 
loaned  $2,622,000.  All  of  the  member  banks  combined  of  South 
Carolina  were  entitled  to  borrow  $7,699,000;  they  borrowed 
$21,105,000  during  tlie  period  of  falling  prices. 

Mr.  POMERENE.  Mr.  President,  does  the  Senator  mean  by 
that  statement  that  that  amount  of  credits  were  out  at  one 
time? 

Mr.  GLASS.    I  do ;  on  each  given  date. 

Mr.  POMERENE.  And  I  assume  that  that  statement  applies 
to  each  of  the  other  illustrations  which  the  Senator  has  given? 

Mr.  GLASS.    It  does. 

Mr.  DIAL.  Mr.  President,  do  tliese  figures  apply  to  condi- 
tions generally  over  the  country  or  simply  to  these  particular 
States  or  regions? 

Mr.  GLASS.  They  apply  to  the  country;  but  the  charge 
here  has  been  that  there  was  discrimination  in  the  agricul- 
tural sections,  and  I  am  undertaking  to  show  that  that  is  ut- 
terly groundless. 

CURSK    OF   TOO    ^lUCH    CREDIT. 

]Mr.  President,  not  infrequently 'too  much  credit  is  a  worse 
curse  than  too  little.  It  allures  individuals  and  corporations 
into  the  morass  of  financial  disaster.  Attempts  to  make  too 
much  money  frequently  result  in  losing  all  one  has.  Of  course, 
some  of  us  can  see  now  what  we  could  not  see  18  months  ago ; 
but  -the  one  thing  that  clearly  stands  out  is  the  fact  that,  had 
the  banks  of  the  country  curtailed  loans  just  before  the  drop  in 
prices,  as  is  mistakenly  charged,  instead  of  lavishly  extending 
loans,  as  authenticated  figures  attest,  thousands  of  people  who 
are  now  in  distress  would  be  happy  and  content.  For  the  good 
of  borrowers  themselves,  the  member  banks  and  the  Faleral 
reserve  banks  too  long  delayed  liquidation.  They  loaned  too 
much  money  rather  than  too  little;  at  least,  that  would  be  my 
criticism  of  their  administration. 

NEW    SYSTEM    NEEDED. 

I  quite  agree,  ^Ir.  President,  in  the  next  place,  that  there  is 
need  in  tliis  country  for  a  strictly  rural-credits  system,  adapted 
to  the  peculiar  wants  and  processes  of  the  agricultural  com- 
munities. Such  a  system  conjoined  with  the  existing  Federal 
land-bank  system,  extending  long-time  seasonal  credits,  em- 
bracing crop  preparation  and  production  as  well  as  orderly  and 
advantageous  marketing,  would  be  of  inestimable  value  to  the 
farmers  of  the  United  States.  This  matter  was  being  meditated 
when  the  advent  of  war  diverte<l  the  attention  and  absorbed 
the  activities  of  statesmen  at  Washington.  We  can  not  too  soon 
renew  consideration  of  the  subject  with  a  puipose  to  devise  a 
system  that  will  do  for  the  farming  community  of  the  United 
States  what  the  Federal  reserve  system  immeasurably  has 
done  for  the  commercial  and  industrial  interests  of  the  coun- 
try. But,  Mr.  President,  you  can  not  build  up  a  long-time  credit 
system  by  picking  to  pieces  or  by  impairing  the  liquidity  and 
the  general  efficiency  of  the  existing  commercial  banking  system. 
The  two  systems  may  successfully  operate  side  by  side,  sym- 
pathetically and  helpful,  but  the  moment  you  undertake  to  trans- 
form one  halfway  into  the  other  you  will  produce  a  financial 
prodigj',  part  fish  and  part  fowl,  which  will  neither  swim  nor 
crow. 

IMr.  POMERENE.  Mr.  President,  in  view  of  the  statement 
which  the  Senator  from  Virginia  has  made  with  regard  to  au 

8(;4G9— 22174 


27 


extension  of  the  system  of  pei"Sona]  rural  credits,  T  might  add 
that  there  is  now  a  joint  connnission  composed  of  Members  of 
the  Senate  and  of  the  House  who  are  studying  that  question. 
They  have  been  taking  some  testimony  on  this  suliject,  and  I 
think  next  week  they  are  to  take  testimony  in  the  city  of 
Atlanta. 
Mr.  GLASS.    That,  of  course,  I  am  glad  to  know. 

WARNINGS   NOT   HKKDKD. 

Adverting,  Mr,  President,  to  the  "cruel  and  murderous"  pol- 
icy of  deflation  which,  as  I  have  shown,  never  actually  had  any 
existence  outside  the  vivid  imagination  of  perplexed  politicians, 
it  has  been  said  here  that  the  alleged  policy  would  have  been 
sound  in  fact  had  it  been  applied  gradually.  I  cojitend  that  no 
policy  of  delhition  was  applied  for  the  period  indicated ;  but  if 
it  be  meant  that  ample  warning  was  not  given  against  a  contin- 
uation of  the  wild  orgy  of  speculation  and  of  the  alarming  in- 
flation of  credits  and  currency  at  an  angle  at  one  period  of  45 
degrees,  it  can  clearly  be  demonstrated  that  warning  after 
warning  was  given.  The  Treasury,  time  and  again,  literally 
implored  people  to  desist  from  their  inordinate  extravagance, 
and  the  public  press  was  tilled  with  editorials  of  caution 
against  the  riot  of  expenditure. 

The  very  first  oflicial  function  I  performed  as  Secretary  of  the 
Treasury  was  urgently  to  insist  on  the  continuance  of  the  Money 
Committee,  composed  of  patriotic,  public-spirited  New  York 
bankers,  to  administer  a  large  fund  designed  to  restrict  tlie  rate 
of  interest  on  commercial  transactions  to  6  per  cent.  Mean- 
while call  money  was  soaring  as  higli  as  30  per  cent  on  specu- 
lative transactions.  Many  bankers  insisted  that  money  was 
worth  what  it  would  bring  in  a  competitive  market,  and  a  dis- 
tinguished ex-governor  of  New  Jersey  bitterly  assailed  the  re- 
strictive policy  of  the  Treasury,  which  was.  of  course,  merely  in 
the  nature  of  moi-al  restraint  and  in  no  sense  compulsory. 

The  members  of  this  Money  Committee  served  without  compen- 
sation, submitting  patiently  to  the  violent  condemnation  of  those 
who  selfishly  desired  to  tax  commerce  with  a  high  rate  of  inter- 
est on  borrowed  inoney.  I  cite  this  incident  to  show  that  as  early 
as  in  the  fall  of  191S  the  public  had  warning  that  interest  rates 
were  being  held  in  leash  only  by  a  resort  to  extraordinary 
expedients. 

CONGUBSS   FAVORED  DEFLATION. 

In  the  late  fall  of  1919  the  governors  of  the  larger  Federal 
reserve  banks  were  invited  to  Washington,  and  were  urged  by 
the  Secretary  of  the  Treasury  to  warn  member  banks  that  spec- 
ulative credits  must  be  curtailed  or  legitimate  connnerce  would 
soon  be  ix^nalized  and  a  condition  presented  which  would  shock 
the  country.  Even  then  we  were  discussing  the  advisability  of 
increasing  the  rediscount  rates  of  the  Federal  reserve  banks,- 
and  House  and  Senat^e,  impatient  and  peremptory,  were  standing 
up  resolutions  demanding  to  know  what  steps  the  Federal  Re- 
serve Board  was  taking  or  contemplating  to  check  the  frightful 
inflation  of  credits  and  cuiTency.  One  of  these  resolutions 
barely  missed  being  an  explicit  order.  It  was  adopted  ujiani- 
mously  by  the  Senate  on  May  17,  1020,  and  reads  as  follows: 

ResGlred,  That  the  Federal  Reserve  Board  be  direc-ted  to  tidviaa  the 
Senate  what  steps  it  puri)oses  to  take  or  to  reconmieud  to  the  m<.'flal>er 
bauks  of  the  Federal  resei've  system  to  meet  the  existing  iuflatiou  of 
86409—22174 


>- -^^ 


28 

currency  and  credits  and  consequent  high  prices,  and  what  further  steps 
it  purposes  to  take  or  recommend  to  mobilize  credits  in  order  to  move 
the  1920  crop. 

The  Treasury  experts,  advised  by  some  of  the  most  eminent 
banljers  of  the  country,  held  the  view  that  any  appreciable  in- 
crease in  the  rediscount  rate  of  the  Federal  reserve  banks 
would  accentuate  the  difliculties  of  floating  the  Victory  loans 
and  greatly  impede  the  certificate  borrowings  of  the  Govern- 
ment, amounting  to  billions  of  dollars.  My  personal  view  also 
was  that  speculative  loans  should  first  be  curtailed  before  we 
began  assessing  higher  interest  charges  against  legitimate 
commerce. 

All  these  things  were  conspicuously  discussed  in  the  public 
press,  particularly  in  the  financial  journals  of  the  country.  But 
the  various  warnings  went  unheeded;  speculation  flourished; 
credits  in  greater  degree  expanded.  The  country  was  aghast 
at  the  range  of  prices  and  the  high  cost  of  living.  England  was 
in  worse  plight.  The  Bank  of  England  advanced  its  discount 
rate  to  6  per  cent  and  in  January,  1920,  the  larger  Federal 
reserve  banks,  soon  followed  by  other  regional  banks,  ad- 
vanced the  rate  here  to  6  and  later  to  7  per  cent.  Did  these 
advances  in  the  rediscount  rates  serve  as  a  warning  that  a  day 
of  reckoning  soon  must  come?  Did  this  action  by  the  Federal 
reserve  banks,  approved  by  the  Federal  Reserve  Board,  and 
practically  urged  by  resolutions  of  Senate  and  House  months 
before,  result  in  tightening  the  reins?  One  only  has  to  examine 
the  figures  I  have  presented  here  to  see  that  the  inflation  of 
credits  still  persisted;  that  the  volume  of  the  currency  con- 
tinued to  increase;  that  even  after  commodity  prices  began  to 
topple  the  Federal  reserve  banks  made  a  desperate  effort  to 
impede  the  velocity  of  the  fall.  From  January  1,  1920,  to  Janu- 
ary 1,  1921,  these  reserve  banks  expanded  loans  to  member 
banks  in  an  amount  approaching  $1,000,000,000.  Yet,  Mr.  Presi- 
dent, in  the  very  face  of  this  indisputable  evidence,  Senators- 
berate  the  Federal  Reserve  Board  and  the  Federal  reserve  banks 
with  the  utterly  false  charge  of  ordering  and  executing  a  policy 
of  "  murderous  deflation."     Such  talk  is  wicked  mummery. 

PASSING  THE   BUCK. 

Mr.  President,  Senators  may  wonder  how  this  misconcep- 
tion got  abroad  about  "  the  deflation  of  credits  and  currency." 
One  way  in  which  it  got  abroad  was  the  willingness,  first,  of 
politicians,  and  then  of  local  banks,  to  *'  pass  the  buck  " — I  believe 
that  is  the  phrase — to  the  Federal  Reserve  Board  and  banks. 
Agitators  advised  the  cotton  interests  of  the  South  to  hold 
their  cotton  for  50  cents.  They  held  it;  and  instead  of  get- 
ting 50  cents  it  fell  to  11  cents.  When  the  slump  came  and  dis- 
aster ensued,  these  evil  advisers  got  from  under  their  mistaken 
advice  by  "  laying  it  on  the  Federal  Reserve  Board."  I  have  in 
mind  now  one  of  these  agitators  who  advised  the  cotton  plant- 
ers of  the  South  to  hold  their  cotton  for  50  cents.  He  has  been 
maligning  the  Federal  Reserve  Board,  although  his  own  bank 
was  extended  nearly  300  per  cent  above  its  proper  quota.  Of 
course,  he  tells  his  victims  that  "  the  Federal  Reserve  Board 
did  it." 

In  the  fall  of  1920,  campaigning  in  Virginia,  I  learned  that  a 

bank  in  one  of  the  counties  where  I  was  making  a  speech  had 

refused   credits  to   its  customers  and   had   told   these  patrons 

that  it  refused  them  credit  because  it  "  could  not  get  any  redis- 

86469—22174 


29 

X!Ounts  at  tlie  Federal  reserve  bank  at  Richmond.**  It  was  a 
nonmember  bank.  It  had  no  right  to  rediscounts  at  the  Federal 
reserve  bank.  It  had  loaned  $96,000  for  the  purchase  of  auto- 
mobiles, and  had  no  more  money  to  loan ;  and,  not  wanting  to 
admit  its  plight,  it  told  its  borrowers  it  could  not  loan  monoy 
because  the  Federal  reserve  bank — of  which  it  was  not  a  mem- 
ber— would  not  rediscount  its  paper! 

I  have  here  a  form  of  notice  sent  out  by  a  bank  in  an  agri- 
cultural district  to  many  of  its  borrowers,  which  reads  as  fol- 
lows : 

Your  note  for  $ falls  due  — — .     ^      ^     .  ,.  .  ,    .^ 

Our  Federal  Reserve  Bank  owns  this  note,  having  rechscountcd  It 
for  us.  As  it  has  boon  renewed  several  times,  they  are  insisting  on  a 
pnyment.  It  is  absolutely  necessary  to  arrange  this  note  on  the  day 
of  its  maturity. 

Yours,  truly,  ~'r.- 

There  was  not  a  word  of  truth  in  that;  and  as  soon  as  the 
Federal  Reserve  Board  found  that  notices  of  this  sort  were 
being  disseminated  throughout  that  district  by  member  banks  it 
issued    an    order    exposing    the    deception    and    expostulating 

against  it. 

I  have  here  a  letter  from  a  business  man  of  Tennessee,  writ- 
ten to  the  governor  of  the  Federal  Reserve  Board,  saying : 

On   September  20  I   offered  to  the  Farmers'   Bank  of $2,250 

of  third  and  fourth  Liberty  loan  bonds,  as  collateral  for  a  30  day  $1,000 
loan ;  this  they  refused  to  grant,  because  they  claimed  they  did  not 
have'tlie  money  and  could  not  get  it. 

And  he  wants  to  know  "why  the  Federal  resei-ve  bank  is 
restricting  credits  in  that  way."  Gov.  Harding  wrote  him,  in 
acknowledgment  of  the  letter,  saying: 

While  the  Federal  Reserve  Board  can  not  compel  a  Federal  reserve 
bank  to  rediscount  paper  for  a  member  bank  which,  in  the  opinion  of 
its  discount  committee,  Is  undesirable,  I  feel  certain  that  the  Federal 
reserve  bank  would  cheerfully  have  rediscountod  your  note  for  the 
Farmers'  National  Bank  with  the  bonds  as  security  had  it  been  offered. 

Of  course,  it  would  have  done  it.    That  sort  of  deception  by 

banks  that  do  not  desire  to  make  loans  has  largely  produced  the 

impression  throughout  the  country  to  which  I  have  referred. 

Konmember  banks  finding  an  excuse  for  not   accommodating 

their  patrons,  and  member  banks  not  having  the  courage  to 

refuse  a  loan,  "pass  the  buck"  to  the  Federal  reserve  banks 

of  the  country. 

THE   CHARGE  OP  "  EXTOUTION." 

A  great  clatter  has  been  raised  about  the  alleged  "  extor- 
tionate" interest  charges  of  the  Federal  reserve  banks;  Init, 
as  in  other  respects,  a  half  truth  only  is  told.  The  real  facts 
are  conveniently  suppressed. 

The  "  progressive  "  interest  charge  was  not  a  feature  of  the 
original  reserve  act;  it  was  put  in  about  three  years  ago  by 
Congress.  It  was  intended  by  Congre'=5S  as  a  penal  provision. 
It  was  not  designed  to  aid  borrov.ing  banks;  it  was  intended 
to  penalize  any  bank  that  should  persist  in  borrowing  more  than 
its  fair  quota  of  the  funds  of  a  reserve  bank,  thereby  depriving 
some  other  member  bank  of  its  fair  basic  line.  If  Congress  did 
not  want  that  done  it  should  not  have  authorized  it  to  be  done. 

But,  Mr.  President,  tliis  "  i>rogressive "  interest  charge  was 

put  into  effect  by  but  4  of  the  12  reserve  banks.    By  these  it  was 

applied  to  comparatively  few  borrowing  banks  in  their  districts. 

These  banks  were  incorrigible  offenders  against  every  require- 

86469—22174 


30 


ment  of  cautious  and  safe  banking.  They  were  perpetually  ex- 
ceeding their  allotted  line  of  credits ;  they  were  incessantly  ap- 
propriating more  than  their  fair  share  of  reserve  bank  funds. 
But  the  assailants  of  the  reserve  system  suppress  these  facts. 
They  fail  also  to  tell  those  whom  they  mislead  that  the  average 
rediscount  rate  charged  by  the  Federal  reserve  banks  against 
the  great  body  of  borrowing  banks  in  the  four  districts  where 
''progressive"  rates  were  very  occasionally  applied  was  much 
below  the  rate  charged  by  these  borrowing  banks  against  their 
own  customers. 

Take  the  case  of  the  one  little  bank  in  the  Atlanta  district, 
the  evil  fate  of  which  has  so  lustily  been  bewailed  here  and 
elsewhere.  This  bank  was  far  below  its  lawful  reserve  for  11 
months  out  of  12,  It  exceeded  its  bafiic  line  of  credit  nearly 
ten  times.  Ninety  per  cent  of  its  capital  teas  loaned  on  notes 
indorsed  by  its  president.  It  seems  to  have  outraged  every  rule 
of  sound  banking.  It  was  penalized  under  the  act  of  Congress 
in  order  to  restrain  its  excesses  and  to  compel  it  to  get  back 
in  line.  It  could  not  have  complained  fairly  had  it  been  put 
in  the  hands  of  a  receiver.  When  it  had  been  forced  to  abate 
its  excesses  the  amount  of  the  "  progressive  "  rate  was  returned 
to  it.    I  doubt  if  this  should  have  been  done. 

But  why  pick  out  a  few  rare  and  extreme  cases  of  offending 
banks  like  this  and  make  it  appear  that  the  Federal  reserve 
system  is  "  extortionate,"  when  its  general  interest  rate  to 
the  great  multitude  of  borrowing  banks  was  not  only  moderate 
but  far  below  the  average  rate  charged  business  men  by 
these  borrowing  banks?  Why  judge  the  system  by  the  discipline 
administered  to  a  few  banks  which  persisted'  in  "  running 
amuck"  of  sane  banking  practices,  and  ignore  the  generous 
and  beneficent  treatment  accorded  the  many  thousands  of 
banks  throughout  the  Nation?  Does  not  this  very  thing  ex- 
hibit the  enemies  of  the  system  in  their  nakedness?  What 
evil  motive  could  a  reserve  bank  have  to  charge  excessive  rates 
when  in  no  event  can  it  pay  its  stockholding  banks  above  6  per 
cent  in  dividends?  What  unworthy  prompting  could  the 
Reserve  Board  have  in  sanctioning  excessive  charges,  when  the 
board  itself  derives  no  single  penny  of  profit  from  any  trans- 
actions of  the  banks?  Is  not  the  utter  foolishness  of  such  tal^ 
deplorable? 

A   DESIflNINO   PHRASB. 

It  has  been  asserted  by  Senators  that  if  the  Federal  reserve 
banks  had  extended  as  great  a  percentage  of  credits  to  the 
"  country  "  banks  as  were  extended  to  the  nu'mber  banks  in  the 
great  central  reserve  cities — New  York,  Chicago,  and  St.  Louis — 
there  would  have  been  a  billion  dollars  more  to  loan  on  agri- 
cultural products.  Mr.  President,  already  I  have  pointed  out 
that  credit  was  not  the  urgent  need  of  any  rationally  operated 
business  interest  in  this  country.  The  crying  need  was  markets, 
not  greater  banking  facilities.  But  let  nie  expose  the  specious 
nature  of  this  play  upon  the  phrase  "country  banks,"  the  evi- 
dent pui-pose  being  to  produce  the  impression  that  "  country  " 
banks  necessarily  engage  in  financing  agricultural  products. 

As  a  matter  of  fact,  every  national  bank  in  New  England,  out- 
side of  the  city  of  Boston,  is  classed  as  a  "  country "  bank. 
Every  bank  in  the  great  State  of  New  York,  outside  New  York 
City,  Albany,  and  Buffalo  is  classed  as  a  "  country  "  bank ;  and 
until  recently  all  the  banks  in  the  great  industrial  city  of  Buf- 
86409—22174 


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falo  were  "  country  "  banks.  Every  bank  in  the  State  of  New 
Jersey  is  a  "  country  "  bank,  and  every  bank  in  the  great  in- 
dustrial State  of  Pennsylvania  outside  Philadelphia  and  Pitts- 
burgh is  a  "  country  "  bank.  And  so  nearly  all  national  banka 
In  the  industrial  State  of  Ohio  are  "  country  "  banks  and  all 
in  Illinois  outside  Chicago  and  Peoria  and  in  Missouri  outside 
St.  Louis  and  Kansas  City.  Most  of  these  banks  are  engaged 
in  financing  industrial  enterprises  and  not  agricultural  products 
especially.  Had  they  borrowed  greater  sums  from  their  Fed- 
eral reserve  banks  there  is  no  assurance,  indeed  it  is  incredible 
to  believe,  tliat  such  funds  would  have  been  devoted  to  the  use 
of  agriculture.  Senators  who  use  this  insinuating  argument 
fail  to  state  that,  because  of  their  larger  reserve  requirements 
member  banks  in  these  great  central  reserve  cities  are  obliged 
to  borrow  about  twice  as  much  to  keep  up  their  13  per  cent  re- 
serve as  a  country  bank  has  to  borrow  to  keep  up  its  less  than 
7  per  cent  reserve.  These  Senators,  with  design,  simply  invoke 
the  tyranny  of  a  phrase  to  make  it  appear  that  farmers  are  the 
victims  of  discrimination,  when  facts  and  figures  show  it  is  not 
true. 

PRINTING    PRESS    ECONOMICS. 

Mr.  President,  there  is  one  other  aspect  of  this  subject  to 
which  I  think  allusion  ought  to  be  made.  I  shall  do  that 
very  briefly,  because  I  do  not  want  to  deprive  other  Sena- 
tors of  an  opportunity  to  discuss  this  problem  in  detail  and  to 
i-eply  to  anything  I  have  said.  If,  as  it  may  be,  I  have  said 
anything  that  is  inaccurate,  I  want  to  be  corrected.  If  I  have 
drawn  any  deductions  which  are  not  warranted,  I  want  them 
exposed. 

It  has  been  said  In  some  quarters  that  the  Federal  Reserve 
Board  might  have  disregarded  the  reserve  requirements  of  the 
Federal  reserve  bank  act,  and  by  doing  so  have  issued  other 
billions  of  dollars  of  notes  and  credits;  and  that  is  true.  That 
is  what  England  did,  Mr.  President,  and  her  foreign  exchange 
became  dislocated,  her  trade  for  a  long  time  was  gravely  im- 
paired, and  in  some  directions  destroyed;  that  is  what  France 
did,  and  the  currency  of  the  nation  was  debased ;  that  is  what 
Germany  did  and  is  doing  to-day,  and  the  mark  is  worth  hardly 
a  half  cent.  That  is  the  doctrine  of  Lenin — the  printing-press 
doctrine — and  look  at  the  plight  of  Russia,  where  it  takes  a  mil- 
lion rubles  to  buy  10  pounds  of  butter !  At  that  rate  it  would 
take  a  traiuload  of  printing-press  "  money  "  to  buy  a  btile  of 
cotton. 

Yes,  the  Federal  Reserve  Board  might  have  pursue<l  the  policy 
which  has  been  suggested;  but  had  it  done  so,  instead  of  our 
country  being  the  financial  Gibraltar  of  the  world,  it  would 
have  been  drawn  Into  the  frightful  maelstrom  of  currency  depre- 
ciation and  credit  debasement.  I  can  not  conform  my  judgment 
to  that  of  men  who  advocate  the  "  printing-press "  doctrine 
practiced  by  Lenin  and  under  which  in  Russia  to-day  the  mate- 
rial upon  which  rubles  are  printed  is  worth  more  as  waste  paper 
than  it  is  as  authenticated  currency. 

AN    HISTORICAL   PARALLEL. 

Coming  from  a  center  of  culture  and  familiar  with  the  epochal 

events  of  history,  you  will  recall,  Mr.  President,  that  several 

decades  before  the  French  Revolution  the  curi^ncy  of  France 

was  the  product  of  tlie  printing  press;  and  the  business  of  the 

86469—22174 


32 

kingdom  was  thereby  depressed  beyond  the  imagination  of  men. 
Those  in  power  enacted  a  law  making  it  a  penal  offense  for  the 
farmers  of  France  to  discriminate  against  paper  "  money  "  in 
favor  of  coin  of  tlie  realm. 

The  penalty  was  a  heavy  fine  and  long  imprisonment  in  jail. 
Later  tlie  rulers,  still  tliinliing  they  might  compel  credit  by 
legislation,  amended  the  law  with  a  view  to  effective  enforce- 
ment; they  made  it  a  capital  crime  to  discriminate  between 
paper  and  metallic  currency.  Eventually  the  heads  of  many 
Of  these  economic  jugglere  dropped  into  the  basket — a  just  re- 
compense of  their  folly  and  profanation  of  power.  That  is  the 
kind  of  currency  with  which  some  Senators  would  have  us  flood 
this  country;  but  I  venture  to  think,  if  we  should  follow  their 
lead,  that  the  farmers  of  the  South  and  West  would  soon  shrink 
from  it  as  they  would  from  the  drippings  of  a  pest  house. 

It  is  a  wise  man  that  considers  the  purchasing  power  of 
money.  There  are  superficial  people  who  would  rather  receive 
a  wage  of  $5  a  day,  when  it  costs  them  $6  a  day  to  live,  than 
to  receive  a  wage  of  $2.50  a  day,  when  it  costs  them  $1.50  to 
live.  One  signifies  ruin  and  the  other  betokens  thrift;  yet 
there  are  many  people  who  fail  to  discriminate;  who  fail  to 
understand  the  purchasing  power  of  the  dollar. 

Mr.  President,  should  we  deplete  our  gold  reserves  and  set 
the  printing  press  in  motion  we  would  literally  ruin  the  coun- 
try. I  know  the  junior  Senator  from  Alabama  thinks  the 
printing  press  was  invented  to  print  "  money." 

^  ALLEGED  EXTRAVAGANCE   EXAMINED. 

Mr.  President,  it  has  been  a  staple  criticism  in  this  Chamber 
that  the  Federal  reserve  banks  are  being  operated  in  an  exor- 
bitantly extravagant  way  in  the  payment  of  salaries  and  general 
expenditures,  and  this  charge  has  been  amplified  into  the  amaz- 
ing statement  that  because  the  Government  of  the  United  States 
is  the  residuary  claimant  of  all  earnings  of  the  banks  after  the 
disbursement  of  6  per  cent  of  the  capital,  these  excess  salaries 
and  expenditures  in  building  operations  amounted  to  a  theft  by 
the  Federal  Reserve  Board  from  the  United  States  Treasury. 
I  am  no  advocate  of  extravagant  expenditures  in  either  Govern- 
ment or  private  institutions. 

I  think  had  I  been  a  member  of  the  Federal  Reserve  Board, 
except  in  the  direst  necessity,  I  would  not  have  agreed  to  ex- 
pend one  dollar  in  building  operations  at  this  time,  because 
of  the  enormous  profiteering  of  the  building  trades  both  by 
people  who  supply  material  and  those  who  furnish  labor.  In- 
vestigations of  the  Lockwood  committee  in  New  York  show 
appalling  graft.  They  indicate  a  state  of  affairs  which  ought 
to  land  in  jail  many  persons  who  now  are  going  at  large. 

I  hold  no  brief  for  the  Federal  Reserve  Board  on  this  point. 
It  may  be  that  some  excessive  salaries  have  been  paid  in  the 
system.  It  may  be  that  some  expenditures  have  been  too  large 
and  others  may  have  been  deferred.  But  we  can  arrive  at  a 
correct  conclusion  in  such  matters  only  by  comparing  relative 
facts.  Let  us  see,  then,  how  the  expenses  of  the  Federal  reserve 
banking  system  appear  in  contrast  with  the  expenses  of  the 
great  central  bank  of  the  most  thrifty  nation  on  earth. 

A    FAIR    CONTRAST. 

The  last  official  report  of  the  Bank  of  France  shows  a  total 
amount  paid  to  the  State  out  of  the  last  year's  profits  of  ap- 
86460—22174 


m 

proximately  104,000,000  francs,  or,  at  the  old  basis  of  exchange 
parity,  something  like  $21,000,000.  At  the  same  time,  there  was 
paid  to  stockholders  by  the  Bank  of  France  approximately 
47,000,000  francs,  or  about  the  equivalent  of  $9,500,000.  The 
capital  of  the  bank  was  182,500,000  francs,  or  about  $36,500,000. 

In  the  Federal  reserve  system  for  the  year  1920,  with  a 
capital  of  approximately  $94,000,000,  the  payments  to  the  Gov- 
ernment amounted  to  something  like  $60,000,000,  while  the  bal- 
ance was  either  paid  to  stockholders  or  carried  to  surplus  ac- 
count. In  this  way  the  stockholding  banks  received  a  total  of 
about  $5,000,000,  as  against  the  $9,500,000  paid  by  the  Bank  of 
France  to  its  stockholders.  It  will  easily  be  seen  that  the 
amount  obtained  by  the  Government  of  France  from  the  opera- 
tions of  its  great  central  bank,  now  nearly  a  century  and  a 
quarter  old,  was  far  less  than  obtained  by  the  Government  of  the 
United  States  from  the  Federal  reserve  system,  while  the 
amount  paid  by  the  Bank  of  France  to  its  stockholders  was 
almost  double  what  was  paid  by  the  Federal  reserve  system  to 
Its  stockholders,  who  are  the  constituent  member  banks. 

Mr.  President,  the  Bank  of  France  states  the  total  of  its  ex- 
penses of  administration  during  the  year  1920,  including  depre- 
ciation, salaries,  and  pensions,  at  approximately  150,000,000 
francs,  or  the  equivalent,  at  old  rates  of  exchange,  of  about 
$30,000,000.  For  the  year  1920  the  expenses  of  administration 
of  the  Federal  reserve  system  were  reported  in  the  annual  re- 
|)ort  of  the  Federal  Reserve  Board  as  having  been  approxi- 
mately $30,000,000.  When  it  is  remembered,  Mr.  President, 
that  the  total  loan  and  discount  operations  of  the  Federal  re- 
serve svstem,  with  12  great  banks  and  23  branches,  were  in  the 
neighborhood  of  $85,000,000,000  in  1920,  while  the  total  dis- 
counts and  advances,  other  than  to  the  Government,  of  the 
Bank  of  France  amounted  at  old  rates  of  exchange  to  roughly 
$12,000,000,000,  a  comparison  between  the  cost  of  operating  the 
two  institutions  may  easily  be  drawn — by  no  means  to  the  dis- 
credit of  the  Federal  reserve  system. 

OFFICIAL   SALARIES    CONSIDERED. 

Mr.  President,  I  desire  to  supplement  the  foregoing  general 
comparison  of  expenses  between  the  Bank  of  France  and  the 
Federal  reserve  system  with  a  brief  reference  in  detail  to  the 
official  salaries  prevailing  in  the  various  Federal  reserve  banks 
with  the  official  salaries  in  individual  member  banks  of  the 
various  Federal  reserve  districts.  Let  us  note  the  case  first  of 
the  New  York  Federal  Reserve  Bank,  against  which  criticism 
has  been  most  violent.  Its  total  annual  salary  account  is 
$509,800  for  its  40  officers,  an  average  of  $12,745,  contrasted 
with  an  annual  salary  account  of  $768,200  for  67  officers  of  one 
large  member  bank,  an  average  of  $11,466. 

Another  large  member  bank  in  New  York  City  with  82  officers 
has  a  total  annual  salary  account  of  $1,574,500,  or  an  average 
of  $19,201  for  each  officer.  The  comparison  with  a  kindred 
result  might  be  extended  to  other  individual  banks  in  New  York. 
The  governor  of  the  New  York  Federal  Reserve  Bank  receives  a 
salary  of  $50,000,  and  I  may  say  to  the  Senate  that  before  he 
went  with  the  Federal  reserve  system  he  was  receiving  a  salary 
of  $60,000. 

Mr.  POMERENE.  May  I  add,  in  this  connection,  without 
naming  him,  that  I  know  of  one  of  these  presidents  who  is  get- 
86469—22174 


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85 


ting  a  salary  of  $25,000,  and  he  has  standing  open  now  two 
offers  of  $50,000. 

Mr.  ROBINSON.     Why  does  lie  not  take  one  of  them? 

Mr.  POMERENE.  Because  he  wants  to  devote  himself  to  the 
public  service. 

Mr.  NORRIS.  Mr.  President,  if  the  Senator  from  Virginia 
will  permit  an  interruption,  does  the  Senator  think  that  a  sal- 
ary of  $50,000  is  too  much,  or  is  it  fair?  Is  the  Senator  in 
favor  of  paying  a  salary  of  $50,000,  or  permitting  it  to  be  paid 
by  the  Federal  reserve  bank? 

Mr.  GLASS.  I  will  say  to  the  Senator  that,  in  this  par- 
ticular time  of  stress,  I  would  think  it  bad  policy  to  pay  the 
president  of  even  so  great  an  institution  as  the  Federal  Reserve 
Bank  of  New  York  as  much  as  $50,000.  Furthermore,  when  it 
was  first  suggested  to  me,  while  I  was  chairman  of  the  Banking 
and  Currency  Committee  of  the  other  branch  of  Congress,  to 
fix  the  salary  at  that  figure,  I  protested  that  the  time  was 
inopportune  to  pay  a  salary  that  large.  I  thought  it  should  be 
deferred ;  I  believed  the  bank  would  incur  the  very  sort  of 
criticism  it  has  incurred. 

But  Senators  must  remember  that  a  bank  can  not  be  con- 
ducted by  hod  carriers;  you  can  not  even  run  it  with  a  Con- 
gressman in  charge,  or  a  newspaper  publisher,  as  I  am.  You 
have  to  get  expert  banking  talent  and  technical  skill  of  the 
highest  description  to  run  a  great  bank  like  the  New  I'^ork 
Federal  Reserve  Bank,  and  you  have  to  get  it  in  open  com- 
petition with  great  individual  banks.  Tlie  Senate  should  re- 
member this  in  considering  the  matter.  Two  member  banks  in 
New  York  City  pay  their  president  $100,000  per  annum  each;  3 
member  banks  pay  their  president  $75,000  per  annum  ;  1  member 
bank  paj's  its  vice  president  $75,000;  1  pays  the  chairman  of 
its  board  of  directors  $65,000;  4  member  banks  pay  their  vice 
presidents  $50,000;  and  22  other  member  banks  pay  their  vice 
presidents  all  the  way  from  $25,000  to  $40,000.  So  that  by 
contrast,  Mr.  President,  the  salary  of  the  governor  of  the 
Federal  Reserve  Bimk  of  New  York,  greater  in  volume  of  busi- 
ness transacted  thjin  the  Bank  of  England  or  the  Bank  of 
France  and  of  any  five  Federal  reserve  banks  combined,  is  not 
so  astounding  as  one  might  be  led  to  suppose  without  any 
examination  of  the  facts. 

The  Boston  Federal  Reserve  Bank  has  a  total  annual  salary 
expenditure  of  $135,500  for  14  officers,  an  average  of  $9,679,  as 
contrasted  with  one  mewiber  bank  having  25  officers  with  a  total 
salary  expenditure  of  $411,200,  an  average  of  $16,448;  another 
member  bank  with  21  officers  has  a  salary  account  of  $20»i000, 
an  average  of  $14,190.  This  comparison  likewise  might  be  ex- 
tended to  other  member  banks  with  a. similar  result.  The 
governor  of  the  Federal  Reserve  Bank  of  Boston  receives  $25,000. 
One  member  bank  of  the  Boston  district  pays  its  president 
$75,<X)0,  another  $50,000,  and  another  $40,000.  One  member 
bank  pays  its  vice  presidents  $42,000.  Many  of  them  pay  their 
vice  presidents  salaries  ranging  from  $25,000  to  $4i>,000.  So 
that  in  Boston,  as  in  New  York,  officials  of  the  Federal  reserve 
bank,  doing  vastljr  more  business  than  any  member  bank,  in- 
deed vastly  more  business  than  many  member  baidis  combined, 
receive  very  much  smaller  salaries  than  many  individual  banks 
pay  to  their  officers. 
8C4G9— 22174 


The  Federal  Reserve  Bank  of  Philadelphia  pays  its  governor 
$25,000.  One  individual  member  bank  in  Philadelphia  pays  its 
president  $80,000;  one  other  pays  $45,000;  another,  $36,000; 
another,  $25,000;  one  pays  its  vice  pi-esident  $40,000.  The 
official  salary  account  of  this  regional  bank  has  an  average 
much  lower  than  the  individual ' member  banks  of  the  district. 

The  Federal  reserve  bank  at  Cleveland  pays  it  governor 
$30,000.  One  individual  member  bank  at  Cleveland  pays  its 
president  $50,000;  another  pays  its  president  $36,000;  another 
pays  $35,000;  the  vice  presidents  of  various  other  Cleveland 
banks  get  in  excess  of  $30,000.  The  general  salary  acct>unt  of 
this  bank  averages  yery  much  less  than  the  salary  account  of 
the  individual  banks  of  Philadelphia. 

The  governor  of  the  Federal  reserve  bank  at  Richmond  gets 
$18,000.  The  president  of  one  member  bank  at  Richmond  gets 
$25,000;  and  of  another,  $25,000.  The  general  salary  account 
of  the  reserve  bank  at  Richmond  just  about  matches  that  of  the 
various  member  banks. 

The  governoi*  of  the  Federal  reserve  bank  at  Atlanta  gets 
$18,000.  Tlie  president  of  one  member  bank  at  Atlanta  gets 
$20,000 ;  another,  $17,500.  The  vice  president  of  one  bank  there 
gets  $18,000.  Tlie  salary  account  of  the  Atlanta  Federal  Re- 
serve Bank  averages  very  mucii  less  than  the  salary  account  of 
the  individuai  member  banks. 

The  governor  of  the  Federal  reserve  bank  at  Chicago  gets 
$35,000.  The  chairman  of  the  board  of  directors  of  one  Chicago 
bank  gets  $75,000  and  another  $60,000,  and  the  President  of 
one  Chicago  bank  gets  $50,000  and  another  $36,OO0.  Many 
Flee  presidents  of  individual  mwi^ber  banks  at  Chicago  get 
salaries  running  from  $25,000  to  $37,500.  The  average  official 
salary  paid  by  the  Chicago  reserve  bank  is  about  one-lialf  the 
average  official  salary  of  the  individual  member  banks. 

The  governor  of  the  Federal  reserve  bank  at  St.  Louis  gets 
$25,0(X).  The  president  of  one  member  bank  at  St.  Louis  gets 
$50,000  and  another  $45,000 ;  one  executive  manager  gets  $40,000 
and  another  $35,000.  Se^^eral  vice  presidents  get  $25,000.  The 
average  of  official  salaries  for  this  reserve  bank  is  much  less 
than  the  average  for  member  banks. 

The  salary  of  the  governor  of  the  Federal  Reser^^e  Bank  of 
Minneapolis  gets  $16,000.  One  president  of  the  JMinneapolis 
National  Bank  gets  $45,000;  another,  $40,000;  and  several 
executive  chairmen  and  vice  presidents  get  salaries  of  $25,000. 
The  average  official  salary  for  this  bank  is  a  little  more  than 
half  the  average  for  member  banks. 

The  governor  of  the  Federal  R^erve  Bank  of  Kansas  City 
gets  a  salary  of  $20,000.  The  president  of  one  individual  mem- 
ber bank  there  gets  $26,000  and  two  $25,000  each.  Tlie  average 
salary  at  the  St.  Louis  bank  is  very  much  less  than  at  the  indi- 
vidual member  banks. 

The  salary  of  the  governor  of  the  Dallas  Federal  Reserve 
Bank  is  $18,000.  The  salary  of  a  president  of  one  member  bank 
is  $20,000  and  the  two  vice  presidents  eacli  $25,000.  The  average 
official  salary  at  tlie  reserve  bank  is  very  much  less  tlian  th« 
average  paid  at  member  banks. 

The  Federal  reserve  bank  at  San  Francisco  pays  it  governor 
$24,000.    The  president  of  two  individual  member  banks  gets 
$50,000  and  of  another  $36,000.    The  average  official  salary  is 
86469—22174 


1 


.*<■ 


36 

less  thau  half  at  the  reserve  bank  than  at  the  individual  member 
banks. 

Mr.  JONES  of  Now  Mexico.     Mr.  President 

The  PRESIDENT  pro  tempore.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  New  Mexico? 

Mr.  GLASS.  1  liope  Senators  will  let  me  hurry  through, 
because  I  desire  to  conclude. 

^Mr.  JONES  of  New  Mexico.  If  the  Senator  floes  not  care  to 
be  disturbed,  I  will  not  interrupt  him. 

Mr.  GLASS.     I  yield  to  the  Senator. 

Mr.  JONES  of  New  ^lexico.  I  merely  wanted  to  inquire  of 
the  Senator  if  lie  thought  there  was  any  difference  between  the 
responsibility  of  a  bank  which  is  dealinji  only  with  securities 
coming:  through  and  indorsed  by  other  banks  and  that  of  a 
bank  which  is  dealing  with  individual  paper. 

Mr.  GLASS,  I  think  when  we  consider  that  tlie  president  of 
the  New  York  Reserve  Bank  and  the  board  of  directors  thereof 
are  directly  responsible  for  $5,000,000,000  in  cash  and  securities, 
the  greatest  gold  reserve  that  ever  was  mobilized  since  the 
world  began  to  revolve  on  its  axis,  we  must  admit  that  the 
responsibility  of  those  officers  is  infinitely  greater  than  that  of 
the  officers  of  a  dozen  individual  banks  combined. 

SALAKIES    FIXED    BY    DIRECTORS. 

If  must  be  understood,  Mr.  President,  that  these  salaries  are 
fixed  by  the  i)oard  of  directors  of  these  respective  Federal  re- 
serve banks,  two-thirds  of  which  directors  are  selected  by  the 
stockholding  banks  of  each  district  and  all  of  them  citizens  of 
the  district.  The  Federal  Reserve  Board  has  the  right  of  re- 
view with  respect  to  these  salaries,  but  it  must  be  admitted 
that  the  regional  board  of  directors,  familiar  witli  all  the  con- 
ditions, circumstances,  and  extent  of  labor  involved,  knows 
better  than  the  Federal  Reserve  Board — knows  vastly  better 
than.  Congress — wliat  are  the  actual  requirements  and  what  is  a 
fair  average  compensation.  At  all  events  the  Federal  Reserve 
Board  does  not  initiate  these  salaries,  and  to  say  that  honorable 
men  who  constitute  this  board  should  be  indicted  by  a  Federal 
grand  jury  because  they  approve  the  considered  judgment  of  the 
boards  of  directors  of  these  regional  banks  is  to  make  a  decla- 
ration that  should  not  enhance  the  reputation  of  a  Senator  for 
sanity  or  for  temperate  speech. 

The  salary  of  Gov.  Strong,  one-half  that  of  several  officials 
of  individual  banks  in  New  York,  was  approvetl  by  the  Federal 
Reserve  Board  on  motion  of  the  Secretary  of  the  Treasury,  Mr. 
McAdoo,  concurred  in  by  every  other  member  of  the  board, 
the  vote  being  unanimous.  I  realize  that  gentlemen  may  differ 
upon  questions  of  expenditures,  particularly  with  reference  to 
ofticial  salaries,  but  it  is  monstrous  to  charge  high-minded, 
patriotic  men  with  theft  from  the  Treasury  wlien  we  disagree 
with  their  judgments. 

ASTOrNDIXG   MISCONCEPTIONS. 

In  this  connection,  :Mr.  President,  let  me  show  the  Senate  to 

what  extent   misconception   and   ignoKance  on   these  questions 

may  go.     Several  weeks  ago  a  Senator  on  this  side  in  a  burst 

of  indignation  exclaimed: 

If  the  governor  of  the  Federal  Reserve  Board  is  worth  $50,000,  what 
is  the  value  to  the  couutiy  of  the  President  of  the  United  Stales? 
What  is  the  value  of  the  Vice  President? 

8tJ469— 22174 


37 

Gov.  Harding  enjoys  tlie  luxuriant  and  luxurious  privilege  of 
fixing  hi8  own  salary.  That  Is  a  privilege  which  the  President  does 
not  enjoy.  It  is  a  privilege  that  the  Vice  President  does  not  enjoy. 
It  IS  a  privilege  that  no  Senator  enjoys,  no  Congressman  enjoys,  no 
admiral  in  the  Navy,  no  general  in  the  Army,  no  member  of  the 
Supreme  Court,  ^  , 

W.  P.  G.  Harding  is  the  only  man'  that  I  know  of  that  has  been 
given  the  power  to  fix  his  own  salary  and  to  fix  the  salaries  of  his 
subordinates. 

Mr.  President,  I  have  not  the  remotest  idea  that  the  Senator 
who  made  this  remarkable  deliverance  had  the  faintest  purpose 
to  misrepresent  the  Federal  reserve  banking  system  or  to  treat 
the  governor  of  the  Federal  Reserve  Board  with  derision.  The 
Senator  thought  his  premise  was  correct,  hence  the  emphasis 
and  feeling  with  which  he  denounced  what  seemed  to  him  an 
extraordinary  situation.  As  a  matter  of  fact,  a  glance  at  the 
Federal  reserve  act  would  have  shown  him  that  Gov.  Hard- 
ing has  no  power  to  fix  his  own  salary  or  the  salaries  of  any  of 
his  subordinates.  He  can  not,  except  in  conjunction  with  other 
members  of  the. board,  iix  the  salary  of  a  typist  in  his  office! 
A  glance  at  tlie  law  would  have  shown  this  indignant  Senator 
ttiat  the  salary  of  the  governor  of  the  Federal  Reserve  Board 
is  definitely  fixed  by  Congress  and  may  not  be  altered  by 
anythmg  that  Gov.  Harding  or  the  Federal  Reserve  Board 
niay  do.  He  would  have  seen  that  Gov.  Harding's  salary 
is  not  $50,000.  It  is  but  $12,000,  so  fixed  by  Congress,  not  a 
dollar  greater  than  that  of  any  other  member  of  the  board. 
Seemg  these  things,  the  Senator  would  not  have  tripped  into  tlie 
mistake  of  moralizing  about  evils  that  do  not  exist. 

I  have  no  intimate  personal  relations  with  the  governor  of 
the  Federal  Reserve  Board;  in  no  sense  or  degree  am  I  his 
spokesman  here.  But  out  of  my  actual  observation  and  knowl- 
edge I  feel,  in  very  decency,  obliged  to  say  to  the  Senate  that  I 
have  seen  this  honorable  public  ofilcial  during  a  fateful  period 
work  himself  to  the  bone  for  his  country.  I  have  seen  him  do 
the  Government's  work  night  and  day  until  his  very  life  was  in 
peril  by  reason  of  physical  exhaustion  and  nervous  prostration. 
I  myself  have  driven  him  from  the  Treasury  Building  for  a  few 
hours  of  rest  to  avert  utter  collapse. 

DEFAMATION    OP   PUBLIC   OFFICIALS. 

I  now  ask  the  Senate's  attention  to  a  statement  even  more 
astonishing  than  that  which  I  have  just  confuteil.  Indeed, 
Mr.  President,  it  is  a  declaration  made  in  this  Cliamber  which 
should  engage  the  very  gravest  attention ;  for,  notwithstanding 
the  ludicrous  misrepresentations  which  it  comprises,  it  carries 
an  implication  which,  if  true,  affects  the  integrity  of  a  great 
Government  institution,  and  which,  if  false,  affects  the  integrity 
of  the  Senate.  I  am  one  of  those  who  can  not  conceive  that  the 
constitutional  immunity  granted  Senators  and  Representatives 
in  Congress  was  ever  intended  as  a  shelter  for  libel  of  public 
men  or  private  citizens,  leaving  them  no  means  of  redress. 
Some  time  back  the  distinguished  junior  Senator  from  Alabama! 
according  to  the  Record,  said  in  this  Chamber : 

*-*^^!i  ^''S^i.^^^t'  I  ana  not  advised  as  to  whether  or  not  anv  of  the 
friends  of  the  Federal  Reserve  Board  were  speculating  in  cotton  at 
that  time.  The  Senator  from  Georgia  [Mr.  Watson]  reminded  us  the 
ti^^AAn  A^^^^^*  ^^'^y  loaned  to  tliemseives  in   the  system  the  sum  of 

^lo,UUU,U(J0. 

8G469— 22174 


38 


Think  of  it — a  board  that  can  not  loan  a  dolhir  to  an  ludi- 
vidiial  or  concern  or  corporation  charged  with  liaving  loaned 
to  its  own  members  $18,000,000! 

I  continue  reading  from  the  statement  of  the  junior  Senator 
from  Alabama : 

I  want  to  say  Just  here,  Mr.  President,  that  if  they  invested  any  of 
that  $18,000,000  in  speculating  on  the  bear  side  of  the  cotton  marlcet  in 
the  month  of  August  last  year,  they  made  a  lot  of  money. 

Do  you  know,  Mr.  President,  bow  much  money  the  man  made  who 
sold  on  the  exchange  1,000  bales  of  cotton  for  the  month  of  August, 
1920?  He  made  on  that  1,000  bales  $45,000  in  cash.  The  Federal 
Reserve  Board  knew  what  effect  its  deflation  policy  would  have  upon 
the  cotton  market.  Those  who  knew  that  that  policy  was  going  to  run 
wild  in  August  last  year  made  millions  of  dollars  to  the  distress  and 
great  injury  of  the  cotton  farmers  of  the  country.  Between  the  montlis 
of  June  and  December  that  policy  cost  tlie  cotton  farmers  more  thdn 
$200,000,000  a  month.  Think  of  that.  Senators!  The  deliberate  and 
premeditated  deflation  policy  of  the  Federal  Reserve  Board  cost  the 
cotton  farmers  more  than  $200,000,000  a  month  between  Jane  and 
December  of  last  year. 

What  was  the  value  of  the  entire  cotton  crop  of  the  country 
in  1920,  may  I  ask  the  junior  Senator  from  South  Carolina 
[Mr.  Dial]  ?  How  much  was  it  in  the  aggregate,  approximately 
or  roughly? 

Mr.  DIAL.    I  would  say  about  $2,000,000,000. 

Mr.  GLASS.  I  wanted  to  know,  because  a  multiplication  of 
the  sum  given  by  the  Senator  from  Alabama  by  the  number  of 
months  will  make  it  appear  that  the  cotton  growers  lost  pretty 
nearly  the  entire  crop. 

Mr.  President,  the  plain  implication  here  is  that  members  of 
the  Federal  Reserve  Board  had  prostituted  their  sacred  trust 
by  using  their  positions  for  the  purpose  of  speculating  in 
cotton  with  the  funds  of  the  Federal  reserve  banks.  If  the 
charge  is  true,  these  public  officials  should  not  only  be  put  iu 
jail  but  they  should  be  kept  there.  The  alleged  act  would  con- 
stitute a  crime  little  short  of  treason.  If  the  charge  is  not  true, 
then  the  Senate  should  contemplate  the  injurious  effect  of  such 
accusations  upon  its  own  reputation. 

In  the  period  to  which  reference  is  made  by  the  Senator  from 
Alabama  the  members  of  the  Federal  Reserve  Board  were 
David  F.  Houston,  Secretary  of  the  Treasury  in  President  Wil- 
son's Cabinet ;  John  Skelton  Williams,  of  Virginia,  Comptroller 
of  the  Currency  by  appointment  of  Mr.  Wilson ;  Charles  S. 
Hamlin,  Assistant  Secretary  of  the  Treasury  under  President 
Cleveland;  W.  P.  G.  Harding,  governor  of  the  board  by  desig- 
nation of  IVIr.  Wilson ;  Adolpli  S.  Miller,  a  university  president 
of  distinction  in  California;  and  Edmund  Piatt,  former  Rep- 
resentative in  Congress  and  member  of  the  Banking  and  Cur- 
rency Committee  of  the  House  from  New  York — all  appointees 
of  Mr.  Wilson.  The  implication  of  crime  is  leveled  by  the 
Senator  from  Alabama  against  every  one  of  these  men  without 
exception.  Is  there  a  Senator  here  who  believes  the  implication 
that  would  impute  crime  to  these  honorable  public  servants? 
If  the  Senator  from  Alabama  believes  that  the  accusation  which 
he  suggests  is  not  a  libel  against  their  names^  and  character,  if 
he  thinks  he  can  justify^  his  amazing  insinuations,  it  is  his  duty 
to  the  country  to  ask  for  a  grand  jury  investigation  of  these 
gentlemen,  who  have  always  borne  and  now  sustain  a  reputa- 
tion among  men  for  probity  and  integrity. 

8G400— 22174 


ao 


But,  Mr.  President,  we  do  not  have  to  await  the  verdict  of  the 
courts  or  the  findings  of  a  committee  to  see  clearly  the  utter  ab- 
surdity of  some  of  these  statements.  The  Federal  Reserve  Board, 
it  is  charged,  loaned  its  own  members  $18,000,000,  which  vast  sum 
it  is  suggested  they  used  to  gamble  in  cotton  after  deliberately 
using  their  official  powers  to  depress  the  price  for  their  own 
profit.  Perhaps  there  are  cotton  pickers  on  plantations  of  the 
South  who  may  be  deceived  by  such  trumpery,  but  surely  there! 
is  no  Member  of  the  Senate  who  does  not  understand  how  abso- 
lutely preposterous  these  accusations  are. 

The  Federal  Reserve  Board,  under  the  law,  could  not  loan  the 
President  of  the  United  States  25  cents;  it  could  not  loan  the 
Chief  Justice  of  the  Supreme  Court  »  dollar;  it  could  not  loan 
John  D.  Rockefeller  a  dime;  it  could  not  loan  the  United  States 
Steel  Corporation  or  the  Standard  Oil  Co.  a  penny.  The  Fed- 
eral Reserve  Board  has  not  a  dollar  to  loan  and  never  had  a 
dollar  to  loan. 

No  Federal  reserve  bank  in  the  system  can  loan  any  individual 
or  corporation  in  the  United  States  a  penny.  The  Federal  re- 
serve banks  neither  receive  deposits  from  nor  make  loans  to 
individuals  or  concerns  or  corporations.  These  banks  are  banka 
of  banks  and  do  business  only  with  banks ;  so  that  if  John  D. 
Rockefeller,  with  all  his  millions,  should  desire  to  borrow 
money,  he  would  be  compelled  to  borrow  it  from  a  local  bank; 
and  the  only  way  that  the  local  bank  cotild  get  a  dollar  from 
the  Federal  reserve  bank  in  Rockefeller's  district  woifld  be  to 
Indorse  Mr.  Rockefeller's  collateral  note,  as  that  of  any  other 
person,  and  put  it  up  as  security  for  a  credit  at  the  reserve  bank. 
The  Federal  Reserve  Board  would  not  necessarily  have  any 
part  -In  or  knowledge  of  the  transaction. 

Aside  from  this,  Mr.  President,  no  member  of  the  Federal 
Reserve  Board  is  permitted  by  law  to  own  one  dollar  of  bank 
stock  or  to  have  any  pecuniary  interest  whatsoever  or  connec- 
tion with  the  operation  or  profits  of  any  banking  institu- 
tion; and  every  member  of  the  board  has  to  take  a  solemn 
oath  to  this  effect.  Moreover,  under  the  law,  the  Federal  reserve 
banks  are  strictly  prohibited  from  loaning  one  dollar  to  member 
banks  for  speculative  purposes.  Thus  the  whole  charge  is  so 
literally  without  foundation  in  fact,  and  so  saturated  with  mis- 
understanding of  Federal  reserve  banking  processes  and  of  the 
Federal  reserve  act  itself  as  to  render  it  comic  if  it  were  not 
pitiful. 

IGNORANCE    RUN    MAD  I 

I  venture  to  Invite  the  attention  of  Senators  and  the  country 

to   another  interesting  discovery  by   the  distinguished   junior 

Senator  from  Alabama.    On  Friday  of  last  week,  in  speaking  to 

the  NewbeiTy  case,  the  Senator  said : 

The  Federal  Reserve  Board  got  an  amendment  to  the  Federal  reserve 
act  through  a  Republican  Congress  permitting  them  to  set  aside  a 
certain  percentage  of  earnings  to  be  used  in  providing  buildings  and 
establishments  for  use  In  the  service.  Thev  accumulated  $100,000,000 
te  a  year.  What  do  you  suppose  they  did?  Without  asking  Congress 
the  Federal  Reserve  Board  appropriat<^  $26,000,000  or  thereabouts — 
to  do  what?  To  build  a  bank  building  in  the  city  of  New  York  ia 
Wall  Street. 

Mr.  President,  that  statement  comprises  a  paragraph  of  eight 
printed  lines  in  the  Record,    It  contains  six  distinctive  asser- 
tions; all  of  it  is  true  except  the  six  distinctive  assertions. 
[Laughter.]     All  of  it  is  true  except  (1)  the  amendment  to  the 
86469—22174 


40 


Federal  reserve  act  was  passed  by  a  Democratic  Congress, 
voted  for  by  the  Senator  from  Alabama,  then  a  Member  of  the 
other  House 

Mr.  HEFLIN.     I  should  like  to  see  the  Record. 

Mr.  GLASS.  I  liave  the  Record.  And  was  api)roved  by 
Woodrow  Wilson.  So  we  can  not  make  any  Democratic  poli- 
tics out  of  that.  The  Senator's  statement  is  true  except  (2) 
that  the  Federal  Resei-ve  Board  did  not  accumulate  $100,000,000 
or  any  other  amount;  except  (3)  that  the  Federal  Reserve 
Board  did  not  appropriate  $26,000,000  or  any  other  amount; 
except  (4)  that  the  Federal  Reserve  Board  can  not  under  the 
law  or  the  operation  of  the  system  appropriate  one  dime  for 
any  purpose;  except  (5)  that  no  Federal  reserve  bank  to  cost 
$26,000,000  is  to  be  built  anywhere;  except  (6)  that  the  pro- 
posed new  Federal  reserve  bank  building  in  New  York  is  not  to 
be  erected  in  Wall  Street. 

Mr.  WADSWORTH.  Aside  from  that,  the  statement  is  all 
right. 

Mr.  GLASS.     It  is  all  right  with  those  six  exceptions. 

Mr.  HEFLIN.  I  should  expect  the  Senator  from  the  State 
where  the  big  bank  building  is  being  erected  to  agree  with  the 
speech  of  the  Senator  from  Virginia. 

Mr.  GLASS.  With  these  six  exceptions  the  Senator's  state- 
ment is  true;  and  this  signifies  how  much  reliance  may  be  put 
in  the  accuracy  of  statements  made  by  the  Senator  from  Ala- 
bama with  respect  to  the  Federal  reserve  banking  system.  His 
assaults  are  made  up  of  fiction  and  are  almost  entirely  devoid 
of  facts. 

CONGRESS    SANCTIONED    BUILDINGS. 

It  is  true — and  I  hope  Senators  will  mark  this — that  the 
Federal  Reserve  Board  respectfully  asked  Congress  to  permit 
the  Federal  reserve  banks  to  increase  the  amount  of  their  sur- 
plus out  of  their  earnings  to  an  amount  equal  to  100  per  cent 
of  their  paid  capital.  Congress  exceeded  the  expectations  of 
the  board  by  having  the  increase  apply  to  subscribed  capital 
plus  10  per  cent  permanently  to  surplus.  The  board  openly  and 
frankly  stated  that  the  purpose  of  the  request  was,  among  other 
things,  to  provide  the  various  regional  reserve  banks  with  better 
building  facilities.  Representative  Phelan,  a.  Democrat  of  Mas- 
sachusetts, chairman  of  the  Banking  and  Currency  Committee 
of  the  House,  presented  and  explained  the  amendment  in  that 
body.     It  was  voted  for  unanimously. 

The  amendment  was  presented  to  the  Senate  by  Mr.  Hitch- 
cock, a  Democrat  of  Nebraska,  acting  for  the  Banking  and 
Currency  Committee  of  the  Senate,  and  was  unanimously  agreed 
to  here.  The  bill  as  passed  was  approved  by  Woodrow  Wilson, 
President  of  the  United  States.  It  is  now  a  law  and  has  been 
for  nearly  three  years. 

MORE    MISINFORMATION. 

After  first  charging  the  reputable  gentlemen  who  constitute 

the  board  of  directors  of  the  New  York-  Federal  Reserve  Bank 

with  being  criminals,  the  Senator  from  Alabama  proceeds : 

Mr.  President,  I  can  not  get  away  from  these  figures  without  looking 
at  them  once  more.  A  banis  building  in  Wall  Street,  ordered  to  be  con- 
structed by  the  Federal  Reserve  Board  of  seven  men,  is  to  cost  around 
$2(>,000.000  *  *  *.  It  seems  to  me  to  be  surrounded  and  covered 
over  with  the  atmosphere  of  graft. 

80460—22174 


41 

At  this  point  the  Senator  from  Alabama  was  interrupted  by 
the  distinguished  senior  Senator  from  Georgia  [Mr.  Harkis], 
who  said: 

I  want  to  call  the  attention  of  the  Senator  to  the  fact  that  this 
$26,000,000  building  in  New  York  will  accommodate  only  about  500  em- 
ployees, while  the  State,  War,  and  Navy  Building,  which  cost  one-third 
that  amount,  accommodates  several  thousand  employees. 

Mr.  HARRIS.     Mr.  President 

Mr.  GLASS.     I  will  ask  the  Senator  to  wait  for  a  moment. 

This  opportune  interruption  of  the  Senator  from  Alabama  by 
the  Senator  from  Georgia,  and  the  fine  piece  of  information 
conveyed  by  the  latter  to  the  former,  was  an  inspiring  contribu- 
tion to  the  discussion ;  and  the  Senator  from  Alabama  with 
renewed  zest  exclaimed: 

That  is  a  good  point  that  my  friend  from  Georgia  made.  The  thing 
gets  worse  the  more  you  look  Into  it.  Five  hupdred  clerks  and  stenog- 
raphers and  coin  carriers  in  Wall  Street,  whose  god  is  gold!  This 
building  will  accommodate  .500  people,  as  against  buildings  of  less  cost 
that  accommodate  thousands. 

Mr.  President,  it  fills  me  with  wonder  that  Senators  seek  to 
discredit  the  greatest  banking  institution  on  earth  by  giving 
currency  to  statements  having  no  more  semblance  of  fact  in 
their  justification.  I  now  yield  to  the  Senator  from  Georgia,  in 
order  that  he  may  tell  me  where  he  gets  sanction  for  his  stat - 
ment  to  the  Senator  from  Alabama  that  the  proposed  new  bank 
building  in  New  York  will  accommodate  but  500  employees. 

Mr.  HARRIS.  Mr.  President,  I  wish  to  state  that  in  reading 
the  report  of  the  Federal  Reserve  Board  I  observed  the  state- 
ment that  in  this  building  there  were  512  men,  as  I  remember, 
but  afterwards  in  reading  the  letter  from  the  governor  of  the 
Federal  Reserve  Board,  which  on  yesterday  was  printed  in  the 
Record,  I  ascertained  that  there  are  512  in  one  building,  but 
there  are  more  than  2,000  in  all  the  buildings.  That  is  how  I 
made  the  error. 

Mr.  GLASS.  The  Senator  does  not  for  a  moment  imagine 
that  I  am  suggesting  intentional  misrepresentation  on  his  part? 
I  do  not  believe  he  is  capable  of  it ;  and,  for  that  matter,  I  do 
not  believe  the  Senator  from  Alabama  has  intended  to  misrep- 
resent these  things ;  he  does  not  just  know  anything  about  them. 
I  do  not  say  that  in  any  spirit  of  acerbity.  It  is  not  remark- 
able that  Senators  know  little  about  this  complex  matter.  It  is 
a  problem  repellent  in  its  very  nature,  and  few  men  have  the 
patience  or  the  foolhardiness  to  bother  with  it;  but  I  say 
that  either  Senator  might  have  found  simply  by  reference  to  the 
letter  of  the  Federal  Reserve  Board,  written  in  response  to  a 
resolution  of  the  Senate,  that  the  woman's  cafe  alone  in  this 
building  will  seat  530  persons;  that  the  men's  cafe  alone  will 
seat  530  persons ;  that  the  cafe  facilities  alone  of  this  new  build- 
ing, designed  to  give  the  men  and  women  employees  decent  ..c- 
commodations  and  meals  at  cost,  will  take  care  of  1,060  people, 
or  twice  as  many  as  these  two  Senators  gave  as  the  measure 
of  the  facilities  of  the  entire  bank  buildinr.  Either  of  these 
Senators  might  have  easily  ascertained  that  this  bank  building 
is  designed  and  planned  to  accommodate  5,000  employees,  ten 
times  the  number  they  told  the  Senate  and  the  country  it  would 
accommodate. 

8G469— 22174 


INTENTIONAL  SECOND  EXPOSURE 


40 

Federal  reserve  act  was  passed  by  a  Democratic  Congress, 
voted  for  by  tlie  Senator  from  Alabama,  then  a  Member  of  the 
other  House 

Mr.  HEFLIN.     I  should  like  to  see  the  Record. 

Mr.  GLASS.  I  have  the  Record.  And  was  api)roved  by 
Woodrow  Wilson.  So  we  can  not  make  any  Democratic  poli- 
tics out  of  that.  The  Senator's  statement  is  true  except  (2) 
that  the  Federal  Resen'e  Board  did  not  accumulate  $100,000,000 
or  any  other  amount;  except  (3)  that  the  Federal  Reserve 
Board  did  not  appropriate  $26,000,000  or  any  other  amount; 
except  (4)  that  the  Federal  Reserve  Board  can  not  under  the 
law  or  the  operation  of  the  system  appropriate  one  dime  for 
any  purpose;  except  (5)  that  no  Federal  reserve  bank  to  cost 
$26,000,000  is  to  be  built  anywhere;  except  (6)  that  the  pro- 
posed new  Federal  reserve  bank  building  in  New  York  is  not  to 
be  erected  in  Wall  Street. 

Mr.  WADSWORTH.  Aside  from  that,  the  statement  is  all 
right. 

Mr.  GLASS.     It  is  all  right  with  those  six  exceptions. 

Mr.  HEFLIN.  I  should  expect  the  Senator  from  the  State 
where  the  big  bank  building  is  being  erected  to  agree  with  the 
speech  of  the  Senator  from  Virginia. 

Mr.  GLASS.  With  these  six  exceptions  the  Senator's  state- 
ment is  true ;  and  this  signifies  how  much  reliance  may  be  put 
in  the  accuracy  of  statements  made  by  the  Senator  from  Ala- 
bama with  respect  to  the  Federal  reserve  banking  system.  His 
assaults  are  made  up  of  fiction  and  are  almost  entirely  devoid 
of  facts. 

CONGRESS    SANCTIONED    BUILDIXGS. 

It  is  true — and  I  hope  Senators  will  mark  this — that  the 
Federal  Reserve  Board  respectfully  asked  Congress  to  permit 
the  Federal  reserve  banks  to  increase  the  amount  of  their  sur- 
plus out  of  their  earnings  to  an  amount  equal  to  100  per  cent 
of  their  paid  capital.  Congress  exceeded  the  expectations  of 
the  board  by  having  the  increase  apply  to  subscribed  capital 
plus  10  per  cent  permanently  to  surplus.  The  board  openly  and 
frankly  stated  that  the  purpose  of  the  request  was,  among  other 
things,  to  provide  the  various  regional  reserve  banks  with  better 
building  facilities.  Representative  Phelan,  a  Democrat  of  Mas- 
sachusetts, chairman  of  the  Banking  and  Currency  Committee 
of  the  House,  presented  and  explained  the  amendment  in  that 
body.    It  was  voted  for  unanimously. 

The  amendment  was  presented  to  the  Senate  by  Mr.  Hitch- 
cock, a  Democrat  of  Nebraska,  acting  for  the  Banking  and 
Currency  Committee  of  the  Senate,  and  was  unanimously  agreed 
to  here.  The  bill  as  passed  was  approved  by  Woodrow  Wilson, 
President  of  the  United  States.  It  is  now  a  law  and  has  been 
for  nearly  three  years. 

MORE    MISINFORMATION. 

After  first  charging  the  reputable  gentlemen  who  constitute 

the  board  of  directors  of  the  New  York-  Federal  Reserve  Bank 

with  being  criminals,  the  Senator  from  Alabama  proceeds : 

Ml'.  President,  I  can  not  get  away  from  the<?e  figures  without  looking 
at  them  once  more,  A  bank  building  in  Wall  Street,  ordered  to  be  con- 
structed by  the  Federal  Reserve  Board  of  seven  men,  is  to  cost  around 
$20,000,000  •  •  *.  It  seems  to  me  to  be  surrounded  and  covered 
over  with  the  atmosphere  of  graft. 

804  GO— 22174 


41 

At  this  point  the  Senator  from  Alabama  was  interrupted  by 
the  distinguished  senior  Senator  from  Georgia  [Mr.  Hakbis], 
who  said: 

I  want  to  call  the  attention  of  the  Senator  to  the  fact  that  this 
$26,000,000  building  in  New  York  will  accommodate  only  about  500  em- 
ployees, while  the  State,  War,  and  Navy  Building,  which  cost  one-third 
that  amount,  accommodates  several  thousand  employees. 

Mr.  HARRIS.     Mr.  President 

Mr.  GLASS.     I  will  ask  the  Senator  to  wait  for  a  moment. 

This  opportune  interruption  of  the  Senator  from  Alabama  by 
the  Senator  from  Georgia,  and  the  fine  piece  of  information 
conveyed  by  the  latter  to  the  former,  was  an  inspiring  contribu- 
tion to  the  discussion ;  and  the  Senator  from  Alabama  with 
renewed  zest  exclaimed : 

That  is  a  good  point  that  my  friend  from  Georgia  made.  The  thing 
gets  worse  the  more  you  look  Into  it.  Five  hupdred  clerks  and  stenog- 
raphers and  coin  carriers  in  Wall  Street,  whose  god  Is  gold !  This 
building  will  accommodate  500  people,  as  against  buildings  of  less  cost 
that  accommodate  thousands. 

Mr.  President,  it  fills  me  with  wonder  that  Senators  seek  to 
discredit  the  greatest  banking  institution  on  earth  by  giving 
currency  to  statements  having  no  more  semblance  of  fact  in 
their  justification.  I  now  yield  to  the  Senator  from  Georgia,  in 
order  that  he  may  tell  me  where  he  gets  sanction  for  his  stat - 
ment  to  the  Senator  from  Alabama  that  the  proposed  new  bank 
building  in  New  York  will  accommodate  but  500  employees. 

Mr.  HARRIS.  Mr.  President,  I  wish  to  state  that  in  reading 
the  report  of  the  Federal  Reserve  Board  I  observed  the  state- 
ment that  in  this  building  there  were  512  men,  as  I  remember, 
but  afterwards  in  reading  the  letter  from  the  governor  of  the 
Federal  Reserve  Board,  which  on  yesterday  was  printed  in  the 
Record,  I  ascertained  that  there  are  512  in  one  building,  but 
there  are  more  than  2,000  in  all  the  buildings.  That  is  how  I 
made  the  error. 

Mr.  GLASS.  The  Senator  does  not  for  a  moment  imagine 
that  I  am  suggesting  intentional  misrepresentation  on  his  part? 
I  do  not  believe  he  is  capable  of  it;  and,  for  that  matter,  I  do 
not  believe  the  Senator  from  Alabama  has  intended  to  misrep- 
resent these  things ;  he  does  not  just  know  anything  about  them. 
I  do  not  say  that  in  any  spirit  of  acerbity.  It  is  not  remark- 
able that  Senators  know  little  about  this  complex  matter.  It  is 
a  problem  repellent  in  its  very  nature,  and  few  men  have  the 
patience  or  the  foolhardiness  to  bother  with  it;  but  I  say 
that  either  Senator  might  have  found  simply  by  reference  to  the 
letter  of  the  Federal  Reserve  Board,  written  in  response  to  a 
resolution  of  the  Senate,  that  the  woman's  cafe  alone  in  this 
building  will  seat  530  persons;  that  the  men's  cafe  alone  will 
seat  530  persons ;  that  the  cafe  facilities  alone  of  this  new  build- 
ing, designed  to  give  the  men  and  women  employees  decent  ..c- 
commodations  and  meals  at  cost,  will  take  care  of  1,060  people, 
or  twice  as  many  as  these  two  Senators  gave  as  the  measure 
of  the  facilities  of  the  entire  bank  building.  Either  of  these 
Senators  might  have  easily  ascertained  that  this  bank  building 
is  designed  and  planned  to  accommodate  5,000  employees,  ten 
times  the  number  they  told  the  Senate  and  the  country  it  would 
accommodate. 
SG469— 22174 


42 


Mr.  SIMMONS.  Mr.  President,  does  the  Senator  from  Vir- 
ginia mean  that  that  number  of  people  are  employed  in  the 
Federal  Reserve  Bank  of  New  York? 

Mr.  GLASS.     Will  be. 

Mr.  WADSWORTH.    They  are. 

NO   "  MARBLB   PALACE.'* 

Mr.  GLASS.  I  would  like  to  be  told  by  either  of  the  Senators 
what  sanction  he  has  for  the  statement  that  this  bank  building 
Is  to  cost  $26,000,000,  and  I  would  like  to  ask  the  Senator  from 
Alabama  what  proof  he  has  that  the  honorable  men  selected  by 
the  New  York  banks  as  their  members  of  the  board  of  directors 
of  the  reserve  bank  are  in  conspiracy  with  the  honorable  mem- 
bers of  the  Federal  Reserve  Board  in  Washington  to  commit 
the  crime  of  graft? 

Mr.  HARRIS.  Mr.  President,  the  Senator  has  referred  to  the 
two  Senators,  and,  as  I  am  one  of  those  whom  he  has  in  mind 
In  making  that  statement,  I  desire  to  say  that  I  read  to  the 
Senate  yesterday  the  exact  cost  of  the  building  as  set  forth 
in  a  letter  from  the  governor  of  the  Federal  Reserve  Board. 
The  building  will  cost  over  $22,000,000,  as  I  remember,  and  the 
furnishings  will  bring  the  total  up  to  $23,000,000.  I  think  that 
is  accurate. 

Mr.  GLASS.  Oh,  no;  the  Senator,  I  am  sure,  is  mistaken, 
and  I  think  I  can  show  that  he  has  misread  the  letter  of  the 
governor  of  the  Federal  Reserve  Board. 

Mr.  President,  has  the  Senate  of  the  United  States  become  a 
body  in  which  the  character  of  private  citizens  may  thus  be 
assailed  without  proof  of  wrongdoing;  in  which  astounding 
charges  may  wantonly  be  directed  against  public  officials  who 
all  their  lives  have  enjoyed  a  reputation  as  honest  men? 

Mr.  President,  I  should  like  to  put  in  the  Record — I  will  not 
weary  the  Senate  by  a  recital  of  the  figures— statistics  show- 
ing the  unimaginable  volume  of  business  transacted  by  the 
Federal  Reserve  Bank  of  New  York.  That  institution,  as  I  indi- 
cated a  while  ago  houses  $5,000,000,000  of  gold  and  securities. 
It  moves  every  working-day  in  the  year  an  average  of  $180,- 
000.000  in  cash  and  $1,940,000,000  in  securities.  Its  discounts 
and  advances  aggregate  $50,000,000,000,  and  so  on. 

The  PRESIDENT  pro  tempore.  Without  objection,  the  mat- 
ter referred  to  by  the  Senator  from  Virginia  will  be  printed 
in   the   Record. 

The  matter  referred  to  is  as  follows: 

The  Federal  Reserve  Bank  of  New  York  is  the  largest  bank  in  the 
country  in  resources,  in  size  of  its  staff,  and  in  daily  turnover.  It 
does  about  one-third  of  the  entire  transactions  of  the  Federal  reserve 
system.  Its  present  staff  Is  56  officers  and  2,7/J  clerks,  exclusive  of  the 
Buffalo  hranch.     The  volume  of  its  operations  for  1920  was  as  foiiows  : 

•'  Discounts  and  advances.  180,462  items,  aggregating  $50,539,428,847. 

"Acceptances  purchased  for  New  York  and  other  Federal  reserve 
tanks,  100,237  items,  aggregating  $2,428,000,000. 

•*  Federal  reserve  notes  and  other  paper  money  handled  and  counted, 
558,397.400  pieces,  aggregating  $2,291,785,088. 

"  Shipments  of  currency  and  coin,  67,405  shipments. 

"Checks  collected,   87.030,424   items,   aggregating  $55,325,112,827. 

"Notes    and    drafts    collected,    503.814    Items,    aggregating    $1,994,- 

713  245 

"'Telegraphic  transfers  of  funds,  147,302  transfers,  aggregating  .;17,- 

"'Balances  settled  through  gold  settlement  fund.  $48,840,900,000. 
"  United   States  Oovernment   checks  and  warrants  paid,   10,712,243 
items,  aggregating  $2,437,759,148. 
86469—22174 


43 


"  Government  bond  department  transactions,  47,797,417  pieces,  aggre- 
gating $6,955,101,000. 

"  Total  certificates  of  indebtedness  department  transactions,  includ- 
ing issues  and  redemptions,  $4,897,841,000. 

"  Securities  handled  in  custody  for  United  States  Treasury  and  mem- 
ber banks,  $100,759,404,785." 

The  cost  of  operating  departments  handling  United  States  Govern- 
ment transactions  is  about  $800,000  per  annum,  a  large  part  of  which 
used  to  be  paid  by  the  Treasury,  but  since  July  1,  1921,  it  is  all  ab- 
sorbed by  the  bank. 

The  bank  holds  about  $5,000,000,000  in  cash  and  securities  stored  in 
11  vaults  located  in  five  separate  buildings.  Some  of  these  vaults  do 
not  alford  sufficient  protection,  but  no  others  are  available.  The  aver- 
age value  of  cash  and  securities  withdrawn  and  replaced  in  the  vari- 
ous scattered  vaults  daily  is,  ca.sh  $180,000,000,  securities  $1,940,- 
000,000,  A  daily  average  of  ;I68  transfers  of  cash  and  securities  are 
made  through  the  streets  and  the  corridors  of  offiee  buildings  at  great 
risk  of  loss. 

RELYING    ON    OLD    ESTIMATES. 

Mr.  GLASS.  Now  as  to  the  cost  of  this  building:  I  have 
here  an  official  statement  which  shows  that  Senators  have  been 
misled  by  estimates  prepared  a  year  ago,  in  March,  1921.  It 
was  an  outside  estimate  of  cost.  Some  Senators  absurdly 
think  that  the  "  estimated  "  cost  of  a  bank  building  in  New 
York  curtails^  rural  credits  in  the  State  of  Alabama.  The  esti- 
mated cost  in  March,  1921,  of  the  building  at  New  York  was 
$17,990,000,  from  which  must  be  subtracted  the  price  that  the 
bank  will  receive  for  its  annex  building,  now  being  temporarily 
occupied,  and  which  will  be  abandoned  and  sold  when  the  bank 
goes  into  the  completed  building.  From  this  extreme  estimate, 
over  a  million  dollars  has  been  saved  on  one  item  and  hundreds 
of  thousands  of  dollars  on  other  items.  Over  a  half-million 
dollars  alone  has  been  saved  on  the  estimated  cost  of  vaults; 
by  the  expenditure  of  $75,000  in  expert  engineering  investiga- 
tions, half  a  million  dollars  was  saved  by  these  "  grafters  "  on 
the  board  of  directors  of  the  Federal  Reserve  Bank  of  New 
York. 

I  might  detain  the  Senate  by  a  description  of  this  building 
which  has  been  spoken  of  as  a  "  marble  palace." 

Mr.  CALDER,     Mr.  President,  will  the  Senator  yield? 

The  PRESIDENT  pro  tempore.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  New  York? 

Mr.  GLASS.     I  do. 

Mr.  CALDER.  Just  to  permit  me  to  say  that  if  the  same 
savings. are  obtained  in  the  other  departments  of  tlie  building,  it 
will  mean  that  the  building  will  cost  less  than  $13,000,000  in- 
stead of  $26,000,000. 

Mr.  GLASS.    Precisely. 

Now,  let  us  look  at  this  thing  relatively.  Let  us  determine 
the  reasonableness  of  it  by  contrast. 

The  bank  building  of  the  Illinois  Merchants'  Trust  Co.  in 
Chicago,  exclusive  of  real  estate,  under  contract,  is  to  cost 
$10,781,000;  and  if  the  contract  had  been  let  when  these  esti- 
mates of  cost  were  made  for  tiie  New  York  building,  it  is  esti- 
mated that  the  cost  of  this  Chicago  building  for  an  individual 
bank,  doing  not  one  tithe  of  the  business  of  this  great  reserve 
bank  in  New  York,  would  have  been  over  $14,000,000. 

The  cost  of  the  reserve  bank  at  Richmond,  measured  by  the 
resources  of  the  bank,  is  less  than  that  of  the  combined  indi- 
vidual bank  buildings  of  Charlotte,  N.  C,  or  of  Lynchburg,  Va., 
my  town,  of  40,000  inhabitants. 
86469—22174 


INTENTIONAL  SECOND  EXPOSURE 


42 

Mr.  SIMMONS.  Mr.  President,  does  the  Senator  from  Vir- 
ginia mean  tliat  tiiat  number  of  people  are  employed  in  the 
Federal  Reserve  Bank  of  New  York? 

Mr.  GLASS.     Will  be. 

Mr.  WADSWORTH.    They  are. 

NO    "  MARBLB    PALACE/' 

Mr.  GLASS.  I  would  like  to  be  told  by  either  of  the  Senators 
what  sanction  he  has  for  the  statement  that  this  bank  building 
is  to  cost  ,$26,000,000,  and  I  would  like  to  ask  the  Senator  from 
Alabama  what  proof  he  has  that  the  honorable  men  selected  by 
the  New  York  banks  as  their  members  of  the  board  of  directors 
of  the  reserve  bank  are  in  conspiracy  with  the  honorable  mem- 
bers of  the  Federal  Reserve  Board  in  Washington  to  commit 
the  crime  of  graft? 

Mr.  HARRIS.  Mr.  President,  the  Senator  has  referred  to  the 
two  Senators,  and,  as  I  am  one  of  those  whom  he  has  in  mind 
in  making  that  statement,  I  desire  to  say  that  I  read  to  the 
Senate  yesterday  the  exact  cost  of  the  building  as  set  forth 
in  a  letter  from  the  governor  of  the  Federal  Reserve  Board. 
The  building  will  cost  over  $22,000,000,  as  I  remember,  and  the 
furnishings  will  bring  the  total  up  to  $23,000,000.  I  think  that 
is  accurate. 

Mr.  GLASS.  Oh,  no;  the  Senator,  I  am  sure,  is  mistaken, 
and  I  think  I  can  show  that  he  has  misread  the  letter  of  the 
governor  of  the  Federal  Reserve  Board. 

Mr.  President,  has  the  Senate  of  the  United  States  become  a 
body  in  which  the  character  of  private  citizens  may  thus  be 
assailed  without  proof  of  wrongdoing;  in  which  astounding 
charges  may  wantonly  be  directed  agaiust  public  officials  who 
all  their  lives  have  enjoyed  a  reputation  as  honest  men? 

Mr.  President,  I  should  like  to  put  in  the  Record— I  will  not 
weary  the  Senate  by  a  recital  of  the  figures— statistics  show- 
ing the  unimaginable  volume  of  business  transacted  by  the 
Federal  Reserve  Bank  of  New  York.  That  institution,  as  I  indi- 
cated a  while  ago  houses  $5,000,000,000  of  gold  and  securities. 
It  moves  every  working-day  in  the  year  an  average  of  $180,- 
000.000  in  cash  and  $1,940,000,000  in  securities.  Its  discounts 
and  advances  aggregate  .$.50,000,000,000,  and  so  on. 

The  PRESIDENT  pro  tempore.  Without  objection,  the  mat- 
ter referred  to  by  the  Senator  from  Virginia  will  be  printed 
in   the  Record. 

The  matter  referred  to  is  as  follows: 

The  Federal  Reserve  Bank  of  New  York  is  the  largest  bank  in  the 
country  in  resources,  in  size  of  its  staff,  and  in  daily  turnover.  It 
does  about  one-third  of  the  entire  transactions  of  the  Federal  reserve 
sy«!tera  Its  present  staff  is  36  officers  and  2,715  clerks,  exclusive  of  the 
Jitiffolo  branch.     The  volume  of  its  operations  for  1920  was  as  fohows: 

"  Discounts  and  advances.  180,402  items,  aggregating  $50,539,428,847. 

"Acceptances  purchased  for  New  York  and  other  Federal  reserve 
tanks,  100,237  items,  ag:gregating  $2,428,000,000.  ^      ^,    , 

"  Federal  reserve  notes  and  other  paper  money  handled  and  counted, 
558,897.400  pieces,  aggregating  $2.291.78.5,088. 

••Shipments  of  currency  and  coin,  G7,40ti  shipments. ^.^„„„„ 

"Checks  collected,   87,030,424   items,   aggregating  $oo,325.112,827. 

"Notes    and    drafts    collected,    503,814    items,    aggregating    $1,994,- 

713  245 

"Telegraphic  transfers  of  funds,  147,302  transfers,  aggregating  vl7,- 

Cl  509  734 
""'Balances  settled  through  gold  settlement  fund.  $48,840,900,000. 
"  United    States   Government   checks   and   warrants  paid,   10,712,243 
items,  aggregating  $2,437,759,148. 
86409—22174 


43 

"  Government  bond  department  transactions,  47,797,417  pieces,  aggre- 
gating $6,955,101,000. 

"  Total  certificates  of  indebtedness  department  transactions,  includ- 
ing issues  and  redemptions,  $4,897,841,000. 

"  Securities  handled  in  custody  for  United  States  Treasury  and  mem- 
ber banks,  $100,759,404,785." 

The  cost  of  operating  departments  handling  United  States  Govern- 
ment transactions  is  about  $800,000  per  annum,  a  large  part  of  which 
used  to  be  paid  by  the  Treasury,  but  since  July  1,  1921,  it  is  all  ab- 
sorbed by  the  bank. 

The  bank  holds  about  $5,000,000,000  in  cash  and  securities  stored  in 
11  vaults  located  in  five  separate  buildings.  Some  of  these  vaults  do 
not  afford  sufficient  protection,  but  no  others  are  available.  The  aver- 
age value  of  cash  and  securities  withdrawn  and  replaced  in  the  vari- 
ous scattered  vaults  daily  is.  cash  $180,000,000,  securities  $1,040,- 
000,000.  A  daily  average  of  068  transfers  of  cash  and  securities  are 
made  through  the  streets  and  the  corridors  of  offioe  buildings  at  great 
risk  of  loss. 

RELYING    ox    OLD    ESTIMATES. 

Mr.  GLASS.  Now  as  to  the  cost  of  this  building:  I  have 
here  an  official  statement  which  shows  that  Senators  have  been 
misled  by  estimates  prepared  a  year  ago,  in  March,  1921.  It 
was  an  outside  estimate  of  cost.  Some  Senators  absurdly 
think  that  the  "  estimated  "  cost  of  a  bank  building  in  New 
York  curtails,  rural  credits  in  the  State  of  Alabama.  The  esti- 
mated cost  ill  March,  1921,  of  the  building  at  New  York  was 
$17,990,000,  from  which  must  be  subtracted  the  price  that  the 
bank  will  receive  for  its  annex  building,  now  being  temporarily 
occupied,  and  whieli  will  be  abandoned  and  sold  when  the  bank 
goes  into  the  completed  building.  From  this  extreme  estimate, 
over  a  million  dollars  has  been  saved  on  one  item  and  hundreds 
of  thousands  of  dollars  011  other  items.  Over  a  half-million 
dollars  alone  has  been  saved  on  the  estimated  cost  of  vaults; 
by  the  expenditure  of  $75,000  in  expert  engineering  investiga- 
tions, half  a  million  dollars  was  saved  by  these  "  grafters  "  on 
the  board  of  directors  of  the  Federal  Reserve  Bank  of  New 
York. 

I  might  detain  the  Senate  by  a  description  of  this  building 
which  has  been  spoken  of  as  a  "  marble  palace." 

Mr.  CALDER.    :Mr.  President,  will  the  Senator  yield? 

The  PRESIDENT  pro  tempore.  Does  the  Senator  from  Vir- 
ginia yield  to  the  Senator  from  New  York? 

Mr.  GLASS.     I  do. 

Mr.  CALDER.  Just  to  permit  me  to  say  tliat  if  the  same 
savings. are  obtained  in  the  other  departments  of  the  building,  it 
will  mean  that  the  building  will  cost  less  than  $13,000,000  in- 
stead of  $26,000,000. 

Mr.  GLASS.    Precisely. 

Now,  let  us  look  at  this  thing  relatively.  Let  us  determine 
the  reasonableness  of  it  by  contrast. 

The  bank  building  of  the  Illinois  Merchants'  Trust  Co.  in 
Chicago,  exclusive  of  real  estate,  under  contract,  is  to  cost 
$10,781,000;  and  if  the  contract  had  been  let  when  these  esti- 
mates of  cost  were  made  for  the  New  York  building,  it  is  esti- 
mated that  the  cost  of  this  Chicago  building  for  an  individual 
bank,  doing  not  one  tithe  of  the  business  of  this  great  reserve 
bank  in  New  York,  would  have  been  over  $14,000,000. 

The  cost  of  the  reserve  bank  at  Richmond,  measured  by  the 
resources  of  the  bank,  is  less  than  that  of  the  combined  indi- 
vidual bank  buildings  of  Charlotte,  N.  C,  or  of  Lynchburg,  Va., 
my  town,  of  40,000  inhabitants. 
86469—22174 


M 


The  New  York  Federal  Reserve  Bank,  even  at  this  outside 
estimate  per  cubic  foot,  would  cost  but  $1.09,  whereas  the 
United  States  Assay  Building  just  constructed  in  New  York 
under  authorization  of  the  Congress  of  the  United  States  will 
cost  $2.04  per  cubic  foot. 

The  charge  to  the  Government  of  the  architect  for  the  New 
York  Federal  Reserve  Bank,  covering  his  services  for  a  five- 
year  period  with  all  of  his  multitude  of  assistants,  was  the  same 
as  his  charge  to  the  Government  for  the  assay  building  in  New 
York. 

Senators  know  perfectly  well  that  nearly  all,  if  not  all,  the 
eminent  professional  architects  of  this  country  belong  to  the 
American  Institute  of  Architects.  They  have  a  standard  charge, 
and  any  man  who  goes  below  that  charge  will  be  turned  out 
of  the  institute.  The  New  York  Reserve  Bank  paid  the  stand- 
ard charge.  It  could  not  have  gotten  a  competent  architect 
for  any  less  money.  The  plans  were  competitive.  While  the 
bank  is  not  to  be  built  in  Wall  Street,  as  Senators  blatantly  de- 
claim, it  can  not  be  built  in  a  sage  field  or  a  Long  Island 
swamp.  It  must  be  located  in  a  business  center,  and  accessible 
sites  in  New  York  cost  more  than  vacant  lots  in  Virginia  or 
Alabama. 

The  latest  estimate  of  the  cost  of  this  building,  if  the  per- 
centage of  savings  in  other  items  is  as  great  as  the  savings 
already  made,  will  be  $12,836,000  and  not  $26,000,000;  and  the 
plans  show  that  very  little  marble  will  be  used  in  its  con- 
struction. The  description  of  it  as  "  a  marble  palace  "  is  mere 
distortion  and  in  no  degree  approaches  the  truth.  The  con- 
struction is  very  plain,  and  to  my  personal  knowledge  the 
present  New  York  bank  building  is  frightfully  inadequate;  any 
Senator  who  will  go  through  that  enormous  establishment  and 
see  its  congested  condition,  in  rented  quarters,  with  the  gold 
reserves  and  the  securities  of  the  member  banks  of  that  great 
district  and  of  the  Government  located  in  five  insecure  build- 
ings must  admit  the  exigent  need  of  a  new  building,  for  of 
the  3,700  employees  1,200  reacted  to  tuberculosis  tests. 

Mr.  WADSWORTH.     On  account  of  overcrowding? 

Mr.  GLASS.  On  account  of  overcrowding.  The  business  of 
the  bank  is  being  conducted  to-day  in  open  and  flagrant  vio- 
lation of  the  health  requirements  of  the  State  of  New  York. 

WHOSE    MONEY    IS    IT? 

Some  Senators  say,  witii  the  best  intent  on  earth,  that  if 
this  had  been  the  money  of  the  New  York  bank  it  would 
have  been  a  different  thing,  but  it  was  *'  the  money  of  the 
people."  So  was  the  money  expended  by  this  Illinois  bank  for 
a  new  building  derived  from  the  people;  and  the  money  to  be 
expended  on  this  New  York  bank  by  sanction  of  (jongress 
itself  is  no  more  "  the  money  of  the  people  "  than  the  money  to 
be  expended  on  the  Chicago  bank.  The  funds  of  neither  bank 
belong  to  "  the  people "  in  the  sense  that  they  are  common 
property. 

Senators  should  want  to  be  fair.  I  am  sure  the  Senator  from 
Nebraska  I  Mr.  NorrisI  does.  He  spoke  more  of  real  sense  on 
the  pending  proposition  here  yesterday  in  five  minutes  than 
some  Senators  have  spoken  on  it  in  five  months.  Let  us  see  to 
whom  this  money  belongs. 
8«469— 22174 


45 


AvS  previously  said,  the  board  recommended  to  Congress  that 
the  re-serve  bank  be  permitted  to  increase  their  surplus  for  the 
express  purpose  of  providing  these  building  facilities. .  The  Con- 
gress, as  I  have  said,  not  only  granted  the  request  of  the  board, 
but  it  went  much  further  than  the  board  asked.  It  is  this  surplus 
fund  which  is  being  invested  in  this  bank  building.  To  whom 
does  it  belong?  By  act  of  Congress,  by  authority  of  law,  it  be- 
longs to  the  Federal  Reserve  Bank  of  New  York,  which  is  owned 
by  the  stockholding  banks  of  New  York.  It  is  the  usufruct  of 
the  enterprise,  the  industry,  the  thrift,  and  labor  of  the  business 
men  of  that  Federal  reserve  district.  If  this  money  were  not 
applied  to  this  purpose  it  would  be  invested  in  some  other  way. 
Not  a  dollar  of  it  could  go  to  Alabama  or  to  Virginia  or  to  any 
other  State.  Not  a  dollar  of  it  could  be  taken  by  the  people 
of  any  other  section  of  the  country  for  any  purpose,  because  the 
people  of  no  other  section  contributed  a  dollar  to  this  fund.  It 
does  not  affect  credits  anywhere  on  earth.  It  does  not  with- 
hold from  agriculture  or  commerce  or  industry  or  any  enter- 
prise one  dollar.  On  the  contrary,  it  gives  work  to  unemployed ; 
it  puts  money  in  circulation  for  materials;  it  gives  a  decent, 
necessary  building  to  house  the  greatest  bank  on  earth. 

Whose  money  is  it? 

I  will  say  to  the  distinguished  Senator  from  Nebraska  [Mr. 
NoRRis]  in  no  event  could  one  dollar  of  this  surplus  go  into  the 
I'reasury  of  the  United  States.  Even  if  it  were  to  go  there  it 
could  not  be  loaned  out;  it  could  not  be  used  to  erect  public 
buildings  for  the  Government  anywhere ;  it  could  not  be  used  to 
prevent  wild  mismanagers  of  banks  from  committing  suicide. 
It  could  only  be  used,  under  the  division  of  profits  provision  of 
the  act,  to  increase  the  gold,  reserve  behind  Treasury  notes  or  to 
liquidate  an  inappreciable  part  of  the  public  debt.  What  a  fiction 
it  is  to  imagine  that  rural  credits  have  been  restricted  by  mere 
estimates  of  what  this  great  bank  building  will  cost ! 

A    PINAIi    MISREPRESENTATION. 

Mr.  President,  there  is  one  other  item  of  the  speech  delivered 
by  the  eminent  Senator  from  Alabama  which  is  more  or  less 
personal  and  with  which  I  did  not  care  to  have  anything  to  do. 
It  is  a  quarrel  primarily  between  him  and  the  governor  of  the 
Federal  Reserve  Board.  It  does  not  concern  me;  it  does  not 
concern  this  problem,  except  that  the  statement  made  by  the 
Senator  may  influence  the  prej  dices,  if  not  the- reason,  of 
some  Senators  here. 

On  Friday  of  week  before  last  the  Senator  said:  ---=•- 

W.  P.  G.  Harding  voted  the  Republican  ticket  in  1920.  as  I  have 
said  hero  before.  Before  Senator  Warren  G.  Harding  was  elected  Presi- 
dent, he— Gov.  Harding— was  bowing  and  smiling  like  a  Democrat,  and 
after  Senator  Harding  was  elected  President  he  bowed  and  smiled  like 
a  Republican. 

What  difference  does  it  make,  in  the  discussion  of  this  ques- 
tion, how  Gov.  Harding  voted?  I  have  a  faint  idea,  recalling 
the  election  returns,  that  a  few  other  Democrats  voted  the 
Republican  ticket  in  the  last  presidential  election— a  few. 

Mr.  CARAWAY.    And  have  been  ashamed  of  it  ever  since. 

Mr.  GLASS.  Mr.  President,  I  would  like  to  leave  my  friend 
from  Alabama  with  one  accurate  statement  to  sustain  his  posi- 
tion, but  I  take  leave  to  read  into  the  Record  a  letter  written 
86469—22174 


INTENTIONAL  SECOND  EXPOSURE 


44 

The  New  York  Federal  Reserve  Bank,  even  at  this  outside 
estimate  per  cubic  foot,  would  cost  but  $1.09,  whereas  the 
United  States  Assay  Building  just  constructed  in  New  York 
under  authorization  of  the  Congress  of  the  United  States  will 
cost  $2.04  per  cubic  foot. 

The  charge  to  the  Government  of  the  architect  for  the  New 
York  Federal  Reserve  Bank,  covering  his  services  for  a  five- 
year  period  with  all  of  his  multitude  of  assistants,  was  the  same 
as  his  charge  to  the  Government  for  the  assay  building  in  New 
York. 

Senators  know  perfectly  well  that  nearly  all,  if  not  all,  the 
eminent  professional  architects  of  this  country  belong  to  the 
American  Institute  of  Architects.  They  have  a  standard  charge, 
and  any  man  who  goes  below  that  charge  will  be  turned  out 
of  the  institute.  The  New  York  Reserve  Bank  paid  the  stand- 
ard charge.  It  could  not  have  gotten  a  competent  architect 
for  any  less  money.  The  plans  were  competitive.  While  the 
bank  is  not  to  be  built  in  Wall  Street,  as  Senators  blatantly  de- 
claim, it  can  not  be  built  in  a  sage  field  or  a  Long  Island 
swamp.  It  must  be  located  in  a  business  center,  and  accessible 
sites  in  New  York  cost  more  than  vacant  lots  in  Virginia  or 
Alabama. 

The  latest  estimate  of  the  cost  of  this  building,  if  the  per- 
centage of  savings  in  other  items  is  as  great  as  the  savings 
already  made,  will  be  $12,836,0(X)  and  not  $26,000,000;  and  the 
plans  show  that  very  little  marble  will  be  used  in  its  con- 
struction. The  description  of  it  as  "  a  marble  palace  "  is  mere 
distortion  and  in  no  degree  approaches  the  truth.  The  con- 
struction is  very  plain,  and  to  my  personal  knowledge  the 
present  New  York  bank  building  is  frightfully  inadee/uate;  any 
Senator  who  will  go  through  that  enormous  establishment  and 
see  its  congested  condition,  in  renteil  quarters,  with  the  gold 
reserves  and  the  securities  of  the  member  banks  of  that  great 
district  and  of  the  Government  located  in  five  insecure  build- 
ings must  admit  the  exigent  need  of  a  new  building,  for  of 
the  3,700  employees  1,200  reacted  to  tuberculosis  tests. 

Mr.  WADSWORTH.     On  account  of  overcrowding? 

Mr.  GLASS.  On  account  of  overcrowding.  The  business  of 
the  bank  is  being  conducted  to-day  in  open  and  flagrant  vio- 
lation of  the  health  requirements  of  the  State  of  New  York. 

WHOSE    MONEY    IS    IT? 

Some  Senators  say,  witli  the  best  intent  on  earth,  that  if 
this  had  been  the  money  of  the  New  York  bank  it  would 
have  been  a  different  thing,  but  it  Avas  "  the  money  of  the 
people."  So  was  the  money  expended  by  this  Illinois  bank  for 
a  new  building  derived  from  the  people;  and  the  mone.y  to  be 
expended  on  this  New  York  bank  by  sanction  of  Congi*ess 
itself  is  no  more  "  the  money  of  the  people  "  than  the  money  to 
be  expended  on  the  Chicago  bank.  The  funds  of  neither  bank 
belong  to  "  the  people "  in  the  sense  that  they  are  common 
property. 

Senators  should  want  to  be  fair.  I  am  sure  the  Senator  from 
Nebraska  [Mr.  Nobris]  does.  He  spoke  more  of  real  sense  on 
the  pending  proposition  here  yesterday  in  five  minutes  than 
some  Senators  have  spoken  on  it  in  five  months.  Let  us  see  to 
whom  this  money  belongs, 
8e469— 22174 


45 

AvS  previously  said,  the  board  recommended  to  Congi-ess  that 
the  reserve  bank  be  permitted  to  increase  their  surplus  for  the 
express  purpose  of  providing  these  building  facilities.  The  Con- 
gress, as  I  have  said,  not  only  granted  the  request  of  the  board, 
but  it  went  much  further  than  the  board  asked.  It  is  this  surplus 
fund  which  is  being  invested  in  this  bank  building.  To  whom 
does  it  belong?  By  act  of  Congress,  by  authority  of  law,  it  be- 
longs to  the  Federal  Reserve  Bank  of  New  York,  which  is  owned 
by  the  stockholding  banks  of  New  York.  It  is  the  usufnict  of 
the  enterprise,  the  industrj',  the  thrift,  and  labor  of  the  business 
men  of  that  Federal  reserve  district.  If  this  money  were  not 
applied  to  this  purpose  it  would  be  invested  in  some  other  way. 
Not  a  dollar  of  it  could  go  to  Alabama  or  to  Virginia  or  to  any 
other  State.  Not  a  dollar  of  it  could  be  taken  by  the  people 
of  any  other  section  of  the  country  for  any  purpose,  because  the 
people  of  no  other  section  contributed  a  dollar  to  this  fund.  It 
does  not  affect  credits  anywhere  on  earth.  It  does  not  with- 
hold from  agriculture  or  commerce  or  industry  or  any  enter- 
prise one  dollar.  On  the  contrary,  it  gives  work  to  unemployed ; 
it  puts  money  in  circulation  for  materials;  it  gives  a  decent, 
necessary  building  to  house  the  greatest  bank  on  earth. 

Whose  money  is  it? 

I  will  say  to  the  distinguished  Senator  from  Nebraska  [Mr. 
NoRBis]  in  no  event  could  one  dollar  of  this  surplus  go  into  the 
Treasury  of  the  United  States.  Even  if  it  were  to  go  there  it 
could  not  be  loaned  out;  it  could  not  be  used  to  erect  public 
buildmgs  for  the  Government  anywhere ;  it  could  not  be  used  to 
prevent  wild  mismanagers  of  banks  from  committing  suicide. 
It  could  only  be  used,  under  the  division  of  profits  provision  of 
the  act,  to  increase  the  gold  reserve  behind  Treasury  notes  or  to 
liquidate  an  inappreciable  part  of  the  public  debt.  What  a  fiction 
It  is  to  imagine  that  rural  credits  have  been  restricted  by  mere 
estimates  of  what  this  great  bank  building  will  cost ! 

A   FINAL   MISREPRESENTATION. 

Mr.  President,  there  is  one  other  item  of  the  speech  delivered 
by  the  eminent  Senator  from  Alabama  which  is  more  or  less 
personal  and  with  which  I  did  not  care  to  have  anything  to  do. 
It  is  a  quarrel  primarily  between  him  and  the  governor  of  the 
Federal  Reserve  Board.  It  does  not  concern  me;  it  does  not 
concern  this  problem,  except  that  the  statement  made  by  the 
Senator  may  influence  the  prejudices,  if  not  the*  reason,  of 
some  Senators  here. 

On  Friday  of  week  before  last  the  Senator  said:  •--•-- 

W.  P.  G.  Harding  voted  the  Republican  ticket  in  1920,  as  I  have 
said  hero  before.  Before  Senator  Warren  G.  Harding  was  elected  Presi- 
dent, he — Gov.  Harding — was  bowing  and  smiling  like  a  Democrat,  and 
after  Senator  Harding  was  elected  President  he  bowed  and  smiled  like 
a  Republican. 

What  difference  does  it  make,  in  the  discussion  of  this  ques- 
tion, how  Gov.  Harding  voted?  I  have  a  faint  idea,  recalling 
the  election  returns,  that  a  few  other  Democrats  voted  the 
Republican  ticket  in  the  last  presidential  election— a  few. 

Mr.  CARAWAY.    And  have  been  ashamed  of  it  ever  since. 

Mr.  GLASS.  Mr.  President,  I  would  like  to  leave  my  friend 
from  Alabama  with  one  accurate  statement  to  sustain  his  posi- 
tion, but  I  take  leave  to  read  into  the  Record  a  letter  written 
86469—22174 


-m 


46 

me  on  January  7  by  the  governor  of  tne  Federal  Reserve  Board, 
in  which  he  says : 

My  dear  SEXAixiR  Glass  :  I  have  just  read  in  the  CONCRESSiONAii 
Record  of  this  moruing  the  remarks  made  by  Senator  IIefun  on  the 
floor  of  the  Senate  yesterday  concerning  me.  I  feel  that  it  is  hardly 
necessary  to  assure  you  that  the  slurs  upon  mo,  stated  mildly,  are  false. 
I  do  not  claim  to  be  infallible,  as  far  as  judgment  is  concerned,  but  I 
do  assert  that  I  never  made  any  improper  use  of  my  official  position, 
I  did  not  go  home  to  vote  in  November,  1920,  for  the  reason  that  I 
could  not  spare  the  time.  The  election  occurred  just  at  the  time  when 
the  strain  on  the  Federal  reserve  banks  was  greatest  and  I  was  tied 
dov/n  to  mv  de.'sk  arranging  interbank  rediscounts.  *  *  •  I  knew 
that  there  was  not  the  remotest  possibility  of  my  failure  to  vote  hav- 
ing the  slightest  effect  upon  the  election  results  in  Alabama.  *  ♦  • 
Sincerely,  yours,  „,    „    ^    ^^ 

W.   P.   G.   IIARDINQ. 

Mr.  HEFLIN.  If  the  Senator  will  permit  me,  I  will  state 
that  under  the  laws  you  do  not  have  to  go  home  to  vote.  You 
can  vote  by  mail. 

Mr.  GLASS.  Yes ;  that  is  true,  and  thus  I  am  prompted  to 
say  that  there  was  one  paragraph  in  tliis  letter  from  Gov.  Har- 
ding I  purposely  omitted  to  read  and  did  not  care  to  read.  I 
would  not  now  state  it  but  for  the  provocation  ottered  by  the 
Senator  from  Alabama.  Gov.  Harding  states  in  his  letter  that  he 
was  not  particularly  eager  to  go  home  to  vote  or  to  send  a 
ballot  by  mail,  because  he  would  have  had  to  vote  for  the  Sen- 
ator, and  he  did  not  want  to  vote  for  the  Senator. 

Mr.  HEFLIN.  I  am  not  surprised  at  that  statement  or  the 
statement  of  the  Senator  who  is  defending  his  record. 

Mr.  GLASS.  I  am  not  defending  Gov.  Harding's  vote  or  fail- 
ure to  vote.  I  am  not  defending  anybody's  record.  I  am  cor- 
recting misconceptions  and  combating  misrepresentations  con- 
cerning the  greatest  banking  system  on  earth. 

A    FARMER    ON    THE    RESERVE    BOARD. 

"With  respect  to  the  pending  measure,  I  have  no  objection  to  a 
trained,  resourceful  farmer  on  the  Federal  Reserve  Board,  and 
never  had  any.  I  myself  am  a  farmer.  The  original  Federal 
reserve  bill  as  presented  by  me  to  the  House  of  Representatives 
provided  that  the  Secretary  of  Agriculture  should  be  ex  officio 
a  member  of  the  Federal  Reserve  Board.  Were  we  to  eliminate 
from  the  galaxy  of  great  statesmen  the  names  of  those  who 
tilleil  the  soil  there  would  not  be  left  enough  outstanding  figures 
to  make  us^proud  of  the  country.  In  my  own  State,  for  example, 
we  would  eliminate  George  Washington,  Thomas  Jefferson, 
Patrick  Henry,  John  Marshall,  Madison,  Monroe,  and  other 
great  men  of  the  farm. 

Wlien  we  provided  that  the  Secretary  of  Agriculture  should, 
ex  officio,  be  a  member  of  the  Federal  Reserve  Board  we  had 
two  sound  reasons  for  the  requirement.  We  thought  a  political 
element  should  be  introduced  into  the  organization  of  the  sys- 
tem—I do  not  mean  a  partisan  political  element ;  I  use  the  term 
in  its  broad  sense.  W^e  did  not  want  to  erect  a  financial 
Frankenstein  which  might  never  be  reached  by  the  people  for 
correction  of  evil  policies  or  the  arrest  of  financial  tyranny. 

W^e  felt  also  that  the  Secretary  of  Agriculture  would  be  a  man 
of  exceptional  force,  acquainted  with  the  requirements  of  scien- 
tific agriculture,  and  might  exercise  a  wholesome  influence  in 
the  deliberations  of  the  board. 

86469—22174 


47 

That  was  the  House  bill;  but  the  Senate  in  its  wisdom  ex- 
cluded the  Secretary  of  Agriculture.  I  think  now  it  might  be 
a  good  thing  to  substitute  the  Secretary  of  Agriculture  on  the 
board  for  the  Comptroller  of  the  Currency.  That  would  pre- 
clude the  expense  of  an  additional  member;  but  I  shall  not  be 
intractable  about  the  proposition  to  increase  the  membership 
with  a  view  to  getting  a  farmer  on  the  board. 

Frankly,  however,  I  find  myself  in  agreement  with  the  Sena- 
tor from  Nebraska  [Mr.  Nokris],  who  in  his  opening  remarks 
said,  in  effect,  that  anyone  who  is  simple  enough  to  suppose 
that  this  proposed  legislation  is  going  to  create  a  revolution  in 
the  policies  of  the  Federal  reserve  banking  system — that  putting 
on  a  farmer  is  going  to  bring  the  millennium  to  the  agricul- 
tural interests  of  the  country — will  find  himself  sadly  deceived. 

CONX'LUSION. 

Mr.  President,  I  know  perfectly  well  that,  compared  with  the 
^reat  men  from  my  own  State  who  have  adorned  high  posi- 
tions in  the  service  of  the  country,  I  do  not  rank  as  much  of  a 
figure  in  public  life ;  but  I  fervently  thank  Heaven  that  no  man 
may  truthfully  say  I  ever  misrepresented  things  to  my  con- 
stituents or  practiced  the  arts  of  a  deceiver.  I  have  tried  to 
render  service  in  the  20  years  I  have  been  in  Clongtess.  If  I 
have  failed,  it  is  my  fault;  and  never  shall  I  undertake  to 
excuse  my  delinquency  by  telling  the  people  of  Virginia  thing^3 
that  are  not  true  about  measures  upon  which  I  have  been  called 
to  pass.  I  try  to  inform  myself  and  to  act  with  intelligence  and 
composure.  I  am  not  afraid  of  consequences,  because  I  would 
rather  retain  my  self-respect  than  to  occupy  a  seat  in  this  or 
any  other  body  for  the  balance  of  the  limited  time  I  have  to 
live. 

In  this  connection  I  may  recall  that  in  the  comedy  by  Eu- 

polis,  called  "  The  Demi,"  all  the  demagogues  in  hell,  one  by 

one,  are  made  to  come  up  and  pass  in  review.    At  last,  when 

Pericles  is  named,  a  character  in  the  play  exclaims : 

And  here,  by  way  of  summary,  now  we've  done, 
Behold,  in  brief,  the  heads  of  all  in  one ! 

God  knows  I  would  rather  in  the  day  of  judgment  take  my 
place  with  outcasts  than  to  have  any  honest  person  say  of  me 
in  respect  of  a  vital  and  pregnant  problem  of  government  what 
was  here  said  of  this  Athenian  palterer.  Any  Senator  who  dis- 
covers his  own  likeness  in  the  picture  is  at  liberty  to  appro- 
priate the  analogy. 

86469—22174 

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